Indirect Tax Notes Unit 1 To 5

NOTES ON INDIRECT TAXATION B.COM / B.COM ACCA (BCM-330) BATCH 2017-2020 Indirect Taxation (GST) UNIT 1 (PART-1) Meaning and structure of indirect taxation in India, background of indirect tax, features, advantage and limitations. Taxation under constitution Constitutional background, and Consumers Indian Tax Structure NOTES OF MEANING AND STUCTURE OF INDIRECT TAXATION IN INDIA Tax structure in India is a three tier federal structure. The central government, state governments, and local municipal bodies make up this structure, Article 256 of the constitution states that “No tax shall be levied or collected except by the authority of law”. Hence, each and every tax that is collected needs to back by an accompanying law. Interestingly, the tax system in India traces its origin to the prehistoric texts such as Arthashastra and Manusmriti. As proposed by these manuscripts, the taxes paid by farmers and artisans in that era would be in the form of agricultural produce, silver or gold. Based on these texts, the foundation of the modern tax system in India was conceptualized by the Sir James Wilson during the British rule in India in the year, 1860. However, post-independence the newly-established Indian Government then soldered the system to propel the economic development of the country. After this period, the Indian tax structure has been subject to a host of changes.

Tax System in India: The tax system in India allows for two types of taxes—Direct and Indirect Tax.

The tax system in India for long was a complex one considering the length and breadth of India. Post GST implementation, which is one of the biggest tax reforms in India, the process has become smoother. It serves as an all-inclusive indirect tax which has helped in eradicating the cascading effect of tax as a whole. It is simpler in nature and has led to upgraded the productivity of logistics. Direct Tax: Direct Tax is levied directly on individuals and corporate entities. This tax cannot be transferred or borne by anybody else. Examples of direct tax include income tax, wealth tax, gift tax, capital gains tax. Income tax is the most popular tax within this section. Levied on individuals on the income earned with different tax slabs for income levels. The term ‘individuals’ includes individuals, Hindu Undivided Family (HUF), Company, firm, Co-operative Societies, Trusts. Indirect Tax: Indirect taxes are taxes which are indirectly levied on the public through goods and services. The sellers of the goods and services collect the tax which is then collected by the government bodies. 

Value Added Tax (VAT)– A sales tax levied on goods sold in the state. The rate depends on the government.

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Octroi Tax– Levied on goods which move from one state to another. The rates depend on the state governments.

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Service Tax– Government levies the tax on service providers.

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Customs Duty– It is a tax levied on anything which is imported into India from a foreign nation.

Tax Collection Bodies: The three bodies which collect the taxes in India have clearly defined the rules on what type of taxes they are permitted to collect. 

The Central Government:income tax, custom duties, central excise duty.

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The State Governments:tax on agricultural income, professional tax, value- added tax, state excise duty, stamp duty.

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Local Bodies: property tax, water tax, other taxes on drainage and small services.

GST: In India, the three government bodies collected direct and indirect taxes until 1 July 2017 when the Goods and Services Act (GST) was implemented. GST incorporates many of the indirect taxes levied by states and the central government. Some of the taxes GST replaced include: 

Sales Tax

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Central Excise Duty

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Entertainment Tax

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Octroi

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Service Tax

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Purchase Tax

It is a multi-stage destination-based tax. Multi-stage because it is levied on each stage of the supply chain right from purchase of raw material to the sale of the finished product to the end consumer whenever there is value addition and each transfer of ownership. Destination-based because the final purchase is the place whose government can collect GST. If a fridge is manufactured in Delhi but sold in Mumbai, the Maharashtra government collects GST. A major benefit is the simplification of taxation in India for government bodies.

GST has three components: 

CGST-Stands for Central Goods and Services Act. The central government collects this tax on an intrastate supply of goods or services. (Within Maharashtra)

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SGST: Stands for State Goods and Services Tax. The state government collects this tax on an intrastate supply of goods or services. (Within Maharashtra)

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IGST: Stands for Integrated Goods and Services Tax. The central government collects this for inter-state sale of goods or services. FOR EXAMPLE (Maharashtra to Karnataka)

Other Government Bodies: For a smooth implementation of the Indian tax system, there are bodies dedicated to it, popularly known as the revenue authorities. 

CBDT: The Central Board of Direct Taxes is a part of the revenue department under the Ministry of Finance. It has a two-fold role. One, it provides important ideas and inputs for planning and policy with regard to direct tax in India. Second, it assists the Income Tax department in the administration of direct taxes.

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CBEC: The Central Board of Excise and Customs deals with policy formulation with regard to levy and collection of customs and central excise duties and service tax.

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CBIC: Post GST implementation, the CBEC has been renamed as the Central Board of Indirect Taxes & Customs (CBIC). The main role of CBIC is assisting the government in policy-making matters related to GST.

Benefits of Taxes: While paying taxes may not be a pleasant feeling, however, it is prudent to understand that tax paid by every single individual contributes towards the country’s administration and resources required for its economic progress. 

It promotes savings as well as investments. If an individual makes certain set of investments, a part amount of the same would be tax exempted, thereby enabling him or her to pay reduced amount of taxes.

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Paying tax also works as a proof that you are not only disciplined in filing your tax returns but also helps at the time of loan application. This is because at the time of

purchasing a home loan, the bank requires proof of whether the applicant has filed his or her taxes regularly. NOTES ON BACKGROUND OF INDIRECT TAX, FEATURES, ADVANTAGES AND LIMITATIONS IN INDIA Indirect Tax What is Indirect Tax? The indirect taxes are the levies made by Central and State government on the expenditure, consumption, services, rights and privileges yet not on the property or income. This includes duties of customs paid on imports, as well as excise duty paid on production and value added tax on certain stages of production and distribution of products etc. All these comprise to make indirect taxes since they are not directly applicable on the consumer’s income. Considering that indirect taxes are less as compared to income tax due to invisibility on pay slip, various state agencies tend to raise these taxes so as to generate higher revenue. Indirect tax is often also known as the consumption tax, since they are a regressive measure in application, and not rooted in paying ability.

Types of Indirect Taxes Goods and Services Tax: The law on GST was brought to action in July 2017, with 17 indirect taxes under its purview. All major services and service tax has been subsumed under the GSTOn the state level: 

State excise duty

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Additional excise duty

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Service tax

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Countervailing duty

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Special additional custom duties

At the central level, it covers: 

Sales Tax

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Entertainment Tax

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Central sales Tax

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Octroi and entry Tax

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Purchase Tax

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Luxury Tax

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Taxes on lottery gambling and betting

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Levies on products outside GST purview:

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Taxes on products that use alcohol and petroleum products.

Sales Tax: The tax levied on the sales of goods. The Union Government imposes this sales tax on the InterState sale, while the sale tax on Intra-state sale is levied by the State Government. This tax has a three-segment bifurcation along 

Inter-State Sale

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Sale during import/export

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Intra-State Sale

Service Tax: Service tax is indirect indices which taxpayers pay on various paid services. These paid services include

Telephone

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Tour operator

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Architect

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Interior decorator

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Advertising

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Health centre

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Banking and financial service

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Event management

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Maintenance service

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Consultancy service

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Service tax interest is 15%

Value Added Tax: The state governments collect this category of taxes. For instance, when a person buys a product that it is important, we pay an additional tax known as Value Added Tax. Paid to the government, the VAT has a rate that is composed along nature of item and respective state of sale.

Custom Duty and Octroi Tax: The tax is levied upon goods imported into the country from abroad. The tax of custom duty is paid at the entry port of a country such as the airport. The rate of taxation is variable as per product’s nature. Octroi is charged upon the goods entering a municipal zone. Excise Duty: Excise duty is an indirect tax form that is charged on the goods produced inside a country. This duty is different from the custom duty. This is also known as CVAT, or Central Value Added Tax. Anti-Dumping Duty: This is levied upon goods that are exported at a rate less than the standard rate by the nation to some other nation. This tax is levied upon by the Central government.

Newly Implemented Indirect Tax (GST) GST is a highly regarded tax system for the country. It is amongst the latest indirect tax systems operating under the constitution of India. The importance of this taxation regime lies in the fact that it covers under itself various other indirect taxes operating inside the country. This tax regime has been brought in mark a change in the economy of the country and to lessen the cascading effects from tax duties that deliver overall market inflation. Features of Indirect Taxes 

Payment and Tax Load - The service provider makes payment of indirect taxes and this is transferred to a final consumer.

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Liability of Tax – Here the seller or service provider makes payment on indirect taxes which are transferred to final consumer.

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Nature – Initially, indirect taxes used to have a regressive nature. Yet, now with the coming of GST, they have become quite progressive.

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Evasion - Indirect taxes are hard to evade due to direct implementation through goods and services.

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Investment and Saving - Most indirect taxes are largely growth-oriented since they demotivate the consumer and encourage savings.

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Social Coverage - The indirect tax has a much larger coverage since their charge falls upon each individual buying products or services.

Advantages of Indirect Taxes: Indirect taxes have advantages of their own. Briefly speaking, they are as under: (i) The Poor Can Contribute: They are the only means of reaching the poor. It is a sound principle that every, individual should pay something, however little, to the State. The poor are always exempted from paying direct taxes. They can be reached only through indirect taxation. (ii) Convenient: They are convenient to both the tax-prayer and the State. I he tax-payers do not feel the burden much partly because an indirect tax is paid in small amounts and partly because it is paid only when making purchases. But the convenience is even greater due to the fact that the tax is “pricecoated”. It is wrapped in price. It is like a sugar-coated quinine pill. Thus, a tobacco tax is not felt when it is included in the price of every cigarette bought. It is convenient to the State as well which can collect the tax at the ports or at the factory. (iii) Broad-based: Indirect taxes can be spread over a wide range. Very heavy direct taxation at just one point may produce harmful effects on social and economic life. As indirect taxes can be spread widely, they are more beneficial and suitable. (iv) Easy Collection:

Collection takes place automatically when goods are bought and sold. A dealer collects the tax when he charges a price. He is an honorary tax collector. (v) Non-evadable: They cannot be evaded, as they are a part of the price. They can be evaded only when the taxed article is not consumed, and ‘his may not always be possible’ (v) Elastic: They are very elastic in yield, imposed on necessaries of life which have an inelastic demand. Indirect taxes on necessaries yield a large revenue, because people must buy these things. (vi) Equitable: When imposed on luxury or goods consumed by the rich, they are equitable. In such cases, only the .Veil-to-do will pay the tax. (vii) Check Harmful Consumption: . By being imposed on harmful products, they can check consumption of harmful commodities. That is why tobacco, wine and other intoxicants are taxed.

Disadvantages: Indirect taxes have some disadvantages too, which are as follows: (i) Regressive: Indirect taxes are not equitable. For instance, salt tax in India fell more heavily on the poor than on the rich, as it had to be paid at the same rate by all. Whether a rich man buys a commodity or a poor man, the price in the market is the same for all. The tax is wrapped in the price. Hence, rich and poor pay the same amount, which is obviously unfair. They are thus; regressive. (ii) Uncertain: Unless indirect taxes are imposed on necessaries, we cannot be sure of the revenue yield. In the case of goods, with an elastic demand, the tax might not bring in much revenue. The tax will raise the price and contract the demand. When the thing is not purchased, the question of the tax payment does not arise. (iii) Raising Prices Unduly: They cause the price of an article to rise b; more than the tax. A fraction of the money unit cannot be calculated, so ever middleman tends to charge more than the tax. This process is cumulative.

(iv) Uneconomical: The cost of collection is quite heavy. Every source o production has to be guarded. Large administrative staff is required to administer such taxes. This turns out to be a costly affair. (v) No Civic Consciousness: These taxes do not develop civic consciousness, because many times the tax-payer does not even know that he is paying tax. The tax is concealed in the price. (vi) Harmful to Industries: They discourage industries if raw materials are taxed. This will raise the cost of production and impair their competitive capacity

NOTES ON TAXATION UNDER CONSTITUTION, CONSTITUTIONAL BACKGROUND, AND CONSUMERS IN INDIA Constitution is the foundation and source of powers to legislate all laws in India. Parliament, as well as State Legislatures gets the power to legislate various laws from the Constitution only and therefore every law has to be within the vires of the Constitution. Talking about the taxation laws and the interpretation of taxation laws, every lawyer or a tax professional practicing taxation laws must understand the basic provisions of Constitution relating to taxation including the powers of Parliament and State Legislatures to legislate regarding levy and collection of tax, the restrictions imposed by our Constitution on such powers, entries concerning taxation in Central List i.e List-1 and State List i.e List-2 of Seventh Schedule to Constitution of India. For example State VAT Acts have been legislated by State Legislatures under Entry 54 of List-II of the Seventh Schedule to the Constitution, which runs as under: “Tax on sale or purchase of goods other than newspapers except tax on interstate sale or purchase.” Hence every law legislated under Entry 54 of State List must levy tax only on the sale or purchase of goods other than newspapers within the State Jurisdiction. If a State law legislated under entry 54 levies tax on the inter-state sale or purchase of goods, it has to be struck down as ultra vires of the Constitution. The roots of every law in India lies in the Constitution, therefore understanding the provisions of Constitution is foremost to have clear understanding of any law. Now, Let us go through some of the relevant provisions of our Constitution relating to taxation:

Article 246(1) of Constitution of India states that Parliament has exclusive powers to make laws with respect to any of matters enumerated in List I in Seventh Schedule to Constitution(i.e Union list). Article 246(3) provides that State Government has exclusive powers to make laws for State with respect to any matter enumerated in List II of Seventh Schedule to Constitution(i.e. State List). Parliament has exclusive powers to make laws in respect of matters given in Union List and State Government has the exclusive jurisdiction to legislate on the matters containing in State List. There is yet another list i.e List III (called concurrent list) in the Seventh Schedule to the Constitution. In respect of the matters contained in List III both the Central Government and State Governments can exercise powers to legislate. In case of Union Territories Union Government can make laws in respect of all the entries in all the three lists. List III of Seventh Schedule(i.e Concurrent list) includes entries like Criminal law and Procedure, Trust and Trustees, Civil Procedures, economic and social planning, trade unions, charitable institutions, price control factories, etc. In case there is a conflict between the laws legislated by State Government and Central Government in respect of entries contained in Concurrent list, law made by Union Government prevails. However there is one exception to this rule, if law made by State contains any provision repugnant to earlier law made by Parliament, law made by State Government prevails, if it has received assent of President. Even in such cases, Parliament can make fresh law and amend, repeal or vary law made by State. Entries in Union list and State list relevant to Taxation. Union List: Entry No. 82 – Tax on Income other than agriculture income. Entry No. 83 – Duties of customs including export duties. Entry No. 84 – Duties of excise on Tobacco and other goods manufactured or produced in India except alcoholic liquors for human consumption, opium, narcotic drugs, but including medicinal and toilet preparations containing alcoholic liquor, opium or narcotics. Entry No. 85 – Corporation tax Entry No. 92A – Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the cource of Interstate trade or commerce.

Entry No. 92B – Taxes on consignment of goods where such consignment takes place during Inter-State trade or commerce. Entry No. 92C – Tax on services Entry No. 97 – Any other matter not included in List II, List III and any tax not mentioned in List II or List III. State List: Entry No. 46 – Taxes on agricultural income. Entry No. 51 – Excise duty on alcoholic liquors, opium and narcotics. Entry No. 52 – Tax on entry of goods into a local area for consumption, use or sale therein (usually called Octroi or Entry Tax). Entry No. 54 – Tax on sale or purchase of goods other than newspapers except tax on interstate sale or purchase. Entry No. 55 – Tax on advertisements other than advertisements in newspapers. Entry No. 56 – Tax on goods and passengers carried by road or inland waterways. Entry No. 59 – Tax on professionals, trades, callings and employment. There are also certain restrictions which have been imposed in our Constitution on the powers of State Governments and Union Government. So far indirect tax especially the tax on sale and purchase of goods is concerned certain restrictions imposed in Constitution are provided here below: Article 286(1) – State Government cannot impose tax on sale or purchase during imports or exports; or tax on sale outside the State. Article 286(2) – Parliament is authorized to formulate principles for determining when a sale or purchase takes place (a) outside the State (b) in the course of import or export.[sections 3,4,5 of CST Act, 1956 have been legislated under these powers]. Article 286(3) – Parliament can place restrictions on tax on sale or purchase of goods declared as goods of special importance and the State Government can tax such declared goods subject to these restrictions[section 14, 15 of CST Act, 1956 imposes restrictions and conditions on the power of State Governments to levy tax on declared goods.] Article 301- Trade, commerce and inter -course through out the territory of India shall be free, subject to provisions of Article 302 to 304 of Constitution.[Entry tax in Haryana was held as

ultra vires of article 301 by Punjab & Haryana High Court in Jindal Strips Ltd. v State of Haryana and others, (2007) 29 PHT 385 (P&H)]. Article 302 – Restriction on trade or commerce can be placed by Parliament in the public interest. Article 303(1), 303(2) – No discrimination can be made between one State and another or give preference to one State over another. Such discrimination or preference can be made only by Parliament by law to deal with situation arising from scarcity of the goods. Article 304 – State can impose tax on goods imported from other States or Union territories, but a State cannot discriminate between goods manufactured in the State and goods brought from other States. Proviso to article 304 provides that State legislature can impose reasonable restrictions on freedom of trade and commerce within the state in public interest. However, such bill cannot be introduced in State Legislature without previous sanction of the President. Article 265 – No tax shall be levied or collected except by authority of law. Article 300A – No person shall be deprived of its property save by authority of law. Concluding in the end, all the above articles of the Constitution are very important in relation to taxation and must be deeply understood by every tax professional. Interpretation of every law, validity of subordinate legislation’s and administrative actions must be judged in the background of the provisions of Constitution

UNIT 1 (PART-2) Meaning and Concept of GST, Need of GST Component of GST- SGST, CGST, IGST, Taxes Subsumed into GST, Benefits of GST to Assesse, Government &

UNIT 1 (PART-3) Pre-GST indirect tax structure in India, products or services which are out of the purview of GST, GSTSlab Meaning and concept of GST What is Goods and Services Tax (GST)? GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. Its main objective is to consolidates all indirect tax levies into a single tax, except customs (excluding SAD) replacing multiple tax levies, overcoming the limitations of existing indirect tax structure, and creating efficiencies in tax administration. Simply put, goods and services tax is a tax levied on goods and services imposed at each point of sale or rendering of service. Such GST could be on entire goods and services or there could be some exempted class of goods or services or a negative list of goods and services on which GST is not levied. GST is an indirect tax in lieu of tax on goods (excise) and tax on service (service tax). The GST is just like State level VAT which is levied as tax on sale of goods. GST will be a national level value added tax applicable on goods and services. A major change in administering GST will be that the tax incidence is at the point of sale as against the present system of point of origin. According to the Task Force under the 13th Finance Commission, GST, as a well-designed value added tax on all goods and services, is the most elegant method to eliminate distortions and to tax consumption. One of the reasons to go the GST way is to facilitate seamless credit across the entire supply chain and across all States under a common tax base. It is a tax on goods and services, which will be levied at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider can claim the input credit of tax which he has paid while purchasing the goods or procuring the service. This is because they include GST in the price of the goods and services they sell and can claim credits for the most GST included in the price of goods and services they buy. The cost of GST is borne by the final consumer, who can’t claim GST credits, i.e. input credit of the tax paid.

Example: A product whose base price is ₹ 100 and after levying excise duty @ 12%value of the product is ₹ 112. On sale of such goods VAT is levied @ 12.5% and value to the ultimate consumer is ₹ 126. In the proposed GST system on base price of ₹ 100 CGST and SGST both will be charged, say @ 8% each, and then the value to the ultimate consumer is ₹ 116. So, in such a case the industry can better compete in global environment. Therefore, GST is a broad based and a single comprehensive tax levied on goods and services consumed in an economy. In particular, it would replace the following indirect taxes as these will be subsumed in the proposed GST: At Central level 

Central Excise Duty

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Service Tax

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Additional Excise Duties

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CVD (levied on imports in lieu of Excise duty)

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SAD (levied on imports in lieu of VAT)

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Excise Duty levied on Medicinal and Toiletries preparations,

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Surcharges and cesses

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Central Sales Tax

At State level VAT/Sales tax Entertainment tax (unless it is levied by the local bodies) Luxury Tax Taxes on lottery, betting and gambling Entry tax not in lieu of Octroi Cesses and Surcharges

Taxes/Duties Likely to be subsumed in GST

Central Taxes/Levies

State Taxes/Levies

Central excise duty under Central Excise Act, 1944

Sales Tax/Value Added Tax (VAT)

Additional excise duties – Under Additional Duties of Excise (Goods of Special Importance Act, 1957

Entertainment tax

Excise Duty under Medicinal & Toiletries Preparation Act, 1955

State excise duty

Service Tax under Finance Act, 1994

Luxury tax

Additional Customs Duty (Countervailing Duty – CVD)

Taxes on lottery, betting & gambling

Special Additional Duty of Customs (SAD)

Entry tax (not in lieu of Octroi)

Surcharges (e.g. national calamity contingent duty)

Purchase tax

Cesses (e.g., Cess on rubber, Cess on tea etc)

State Cesses

Central Sales tax (to be phased out)

State Surcharges

Taxes/Duties not likely to be subsumed in GST Central Taxes/Levies

State Taxes/Levies

Basic Customs Duty

Taxes on Liquors

Excise Duty on Tobacco products

Toll Tax/ Road Tax

Export Duty

Environment Tax

Taxes on petroleum products

Property Tax

Stamp Duties

Purchase tax on food grains

Specific Central Cess like Oil Cess etc

Taxes on motor spirit & high speed diesel Tax on Consumption or Sale of Electricity – Not certain Stamp Duty – Not certain

COMPONENTS OF GST, TAXES SUBSUMED INTO GST GST Structure GST will have four slabs of indirect taxation: 5%, 12%, 18% and 28%, with goods and services attracting any of these slab percentages depending on various factors such as being a luxury good/service. The current indirect tax structure will give way to a Dual GST model, with the Centre and States simultaneously levying GST on a common tax base, as follows: 

Central GST Bill (CGST): For intra-state transactions related to supply of goods and/or services, levied by the Centre.

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State or Union Territory GST Bill (SGST or UTGST): For the supply of goods and/or services in the States and Union Territories, levied by the States/Union Territories.

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Integrated GST Bill (IGST): For inter-state transactions and imports related to supply of goods and/or services, carried out by the Centre.

Under this structure, the CGST and SGST/UTGST will be levied simultaneously on the same price or value. Here is an example of how this will happen: Consider a steel supplier who manufactures in Jharkhand and supplies steel to another company within Jharkhand. Let us assume the rate of CGST to be 10% and SGST to be 7% and the selling price of the steel to be Rs. 100. The supplier will charge the client a CGST of Rs 10 and SGST of Rs 7. The supplier needs to deposit Rs 10 in his Centre taxation account, and Rs. 7 in the State taxation account. Due to input credit facility, the supplier has the option of setting off the total payment (Rs 17) against the tax he paid on his purchases or inputs. However, these credit values cannot be mixed

—for CGST-setoffs he can utilize only the CGST credit; for SGST-setoffs he can utilize only SGST credit. Dual GST A Dual-GST is particularly suitable for the Indian economy because in India both the Centre and States are assigned the duty of levying and collecting taxes. So far, the Constitution clearly demarcated the tax levying and collection duties of the Centre and State, with the Centre responsible for taxing the manufacture of goods, and the State responsible for taxing the sale of goods. For services, only the Centre was allowed to levy Service Tax. To override this segregation of power, and enable the smooth implementation of GST, a Constitutional amendment (Constitution Act, 2016) was made so as to simultaneously empower the Centre and the States to levy and collect this tax. With this amendment, the Dual GST regime will now align well with the fiscal federal protocols of India. Taxes subsumed under GST The following are the disparate taxes (levied by the Centre and States) which will be subsumed under the new dual-GST regime. (A) Taxes currently levied and collected by the Centre: 

Central Excise Duty

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Duties of Excise (Medicinal and Toilet Preparations)

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Additional Duties of Excise (Goods of Special Importance)

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Additional Duties of Excise (Textiles and Textile Products)

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Additional Duties of Customs (commonly known as CVD)

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Special Additional Duty of Customs (SAD)

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Service Tax

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Central Surcharges and Cesses so far as they relate to supply of goods and services

(B) Taxes currently levied and collected by the States: 

State VAT

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Central Sales Tax

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Luxury Tax

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Entry Tax (all forms)

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Entertainment and Amusement Tax (except when levied by the local bodies)

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Taxes on advertisements

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Purchase Tax

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Taxes on lotteries, betting and gambling

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State Surcharges and Cesses so far as they relate to supply of goods and services

The taxes to be subsumed were decided after intense debate and consideration of some core principles that were in line with the GST ethos. Each tax was first examined to ensure it qualified for indirect taxation and was related to the supply of goods or services. Moreover, a tax which was to be subsumed needed to be part of the transaction chain right from imports through manufacturing to the provision of services and the consumption of goods/services. Another important criteria to allow a tax to be subsumed was that the subsumation should lead to free flow of tax credit at Intra- and inter-State levels. Also, the revenue considerations of both the Centre and the State were taken into perspective while arriving at the final list of subsumed taxes.

BENEFITS OF GST TO ASSESSEE, GOVERNMENT

SAME AS ADVANTAGES INTRODUCTION

OF

GST

AS

DISCUSSED

IN

THE

UNIT 2- (PART1) Meaning and types of supply under GST, what are taxable event, supply by a person vs. Supply by a taxable person. What is supply under GST? Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST.

 

Elements of Supply Supply has two important elements: 

Supply is done for a consideration

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Supply is done in course of furtherance of business

If the aforementioned elements are not met with, it is not considered as a sale. Examples: 1. Mr. A buys a table for Rs.10,000 for his personal use and sells it off after 10 months of use to a dealer. This is not considered as supply under CGST as this is not done by Mr A for the furtherance of business.

2. Mrs. B provides free coaching to neighbouring students as a hobby. This is not considered as supply as this act is not performed for a consideration. However, as specified in Schedule I of GST Act, certain activities are considered as supply even if it is made without consideration.

Classification of supply and types Composite supply and Mixed Supply: There are a few supplies which are made together with two or more items. Such supplies are further classified into Composite Supply and Mixed Supply. A supply comprising of two or more goods/services, which are necessarily supplied in conjunction with each other as per frequent business practices followed in that area. In other words, these items cannot be supplied individually. There is a principal supply and a secondary supply in the whole transaction. In such cases, the tax rate on principal supply will apply on the entire supply.  E.g. Buying a Dry Fruit Gift Box for Diwali. It includes dry fruits, a box and a wrapper. Box and wrapper cannot be sold individually without the main content which is dry fruit. This is composite supply. A supply comprising of two or more goods/services, wherein the supplies are independent of each other and are not necessarily required to be sold together is called a mixed supply. The first condition to be met for mixed supply is that ‘it should not be a composite supply’. In such cases, the tax rate that is higher of the two supplies will be applicable to the entire supply. 

E.g Buying a Christmas package consisting of cakes, aerated drinks, chocolates, Santa caps and other gift items. Each of these items can be sold separately and are not dependent on each other. This is mixed supply.   Import of services: Import of goods/services with consideration is considered as supply whether for personal or business use. Scope : List of supplies and taxability

Activities considered as a supply of goods as per Schedule II of the GST Act

Transfer – Transfer of title of goods Transfer of business assets: 1. Business assets transferred/disposed of with or without consideration 2. If the owner ceases to be a taxable person then his business assets will be assumed to be supplied to him in course of his businessThis is not applicable in the following cases: 

Business is transferred to another person



Business is carried by a taxable representative

Supply of goods by an unincorporated AOP/BOP for a consideration   Activities considered as a supply of services as per Schedule II of GST Act Transfer -Transfer of right in goods without transfer of title Land and building – 1. Lease, rent, tenancy, easement, licence to occupy land 2. Lease or letting out of the building (Building includes commercial/ industrial/residential complex for business use either wholly or partly) Transfer of business assets: The owner uses or allows to use business assets for personal use. Construction of a building/complex intended for sale to a buyer wholly or partly Temporary transfer or permitting the use of intellectual property right Renting of immovable property (Rented residence is exempted from GST)

Development of information technology software Agreeing to refrain from an act – Non-competition agreements Transfer of right to use any goods for a consideration Any treatment or process which is applied to another person’s goods is a supply of services.   Activities or transactions treated neither as the sale of goods nor sale of services as per Schedule III of GST Act Following are the transactions covered under negative list: 1. Services provided by an employee to the employer. 2. Gifts up to Rs.50,000/- in value in a Financial Year, by an employer to an employee 3. Services of the funeral, burial, crematorium or mortuary including transportation of the deceased 4. Services by any court or Tribunal. 5. Duties performed by the MP/MLA/MLC/ Members of Local Bodies. 6. Duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority. 7. Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity. 8. Sale of Land 9. Sale of Building (However, If construction of a complex /building intended for sale to a buyer and part of the consideration is received before completion, then it will be treated as Supply of Services) 10. Actionable claims, other than lottery, betting and gambling. Thus, GST law has simplified tax treatment by clearly classifying activities considered as goods/services or transactions considered as neither sale of goods or services

What are the taxable events under GST? Taxable events in present indirect tax regime Determination of the taxable event in any tax law is of utmost significance as the levy of tax is based on occurrence of that event. Before we proceed further to understand and analyse the taxable event under the GST regime, it is imperative to first understand the taxable events under the present indirect taxation:

Tax/ Duty

Service Tax

Taxable Event

Service provided or agreed to be provided by one person to another in the taxable territory

Section/ Act

Relevant Provision

Section 66B of the Finance Act, 1994

“There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed……..” “There shall be levied and collected in such manner as may be prescribed,

Excise Duty

Manufacture or production of goods in India

Section 3 of the Central Excise Act, 1944

1(a) a duty of excise to be called the Central Value Added Tax (CENVAT), on all excisable goods (excluded goods produced or manufactured in special economic zones)  which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986)………….”

Customs

Goods imported

Section 12

“(1) Except as otherwise provided in this

Duty

CST

VAT

of the Customs Act, 1962

Act, or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, on goods imported into, or exported from, India……”

Sale of goods in the course of InterState trade

Section 6 of Central Sales Tax Act, 1956

“(1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified……”

Sale of goods in the course of IntraState trade

As per the provisions given in respective State VAT Acts, like under DVAT, Section 3(2) of the DVAT Act, 2004 provides that “Every dealer shall be liable to pay tax at the rates specified in Section 4 of this Act on every sale of goods effected by him….”

into, or exported from, India

“SUPPLY” – the taxable event under the Model GST Law In the Model GST Law, a uniform and single taxable event ‘supply’ would replace multiple taxable events i.e. manufacture, provision of service and sale, etc., as prevalent in the present regime. Thus, the constant monitoring and compliance required for keeping track of varied tax trigger points at present would fade away in GST, but, simultaneously, the term ‘supply’ will hold the greatest significance and shall be important in determining the taxability of all transactions, whether commercial or otherwise under GST regime.

Section 3 of the Model CGST/SGST Act, 2016 [also applicable for the Model IGST Act vide Section 2(f) thereof] specifies the meaning and scope of the term supply, broadly, in the following manner:

Broad Category

Subsection of Section 3

Particulars

 

1

Supply includes:

1(a)

All forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

1(b)

Importation of service, whether or not for a consideration and whether or not in the course or furtherance of business.

1(c)

A supply specified in Schedule I (Matters to be treated as supply without consideration), made or agreed to be made without consideration.

2

Schedule II (Matters to be treated as supply of goods or services), in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as either supply of goods or supply of services.

2A

Where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.

Normal supply of goods and/or services  

Import of service

Supply Without consideration

Supply of goods v/s Supply of services

Principal – Agent Transaction Power(s) of Central/State government

3

Subject to sub-section 2, the Central or a State Government may, upon recommendation of the GST council, specify, by notification, the transactions that

Broad Category

Subsection of Section 3

Particulars are to be treated as:(i)       a supply of goods and not as a supply of services; or (ii)     a supply of services and not as a supply of goods; or (iii)   neither a supply of goods nor a supply of services.

Branded service by an aggregator under trade or brand name

4

Notwithstanding anything contained in sub-section 1, the supply of any branded service by an aggregator, as defined in sec 43B, under a brand name or trade name owned by him shall be deemed to be a supply of the said service by the said aggregator.

SUPPLY BY A PERSON VS SUPPLY BY A TAXABLE PERSON A taxable person is liable to pay tax under GST.

2. Who is a taxable person in GST? A person is registered or is liable to be registered under the law would be a taxable person in GST. A person would be liable to be registered under the law under two categories: a)       Person liable to be registered mandatorily. b)       Person liable to be registered provided aggregate turnover of supply of goods or services or both exceeds threshold limit.      Generally, a person is liable to pay tax on the supply of goods or services made by him. Whether in any case, a person is liable to pay tax on these supplies received by him? The tax is generally paid by the person on the supply of goods or services made by him. This is called Forward charge of Tax.

Case Study: A is a Chartered Accountant. He provides consultancy on a taxation matter to B. A is liable to get registered and pay tax on the supply of services made by him to B subject to fulfillment of conditions as prescribed under the law. In some of the cases, a person is liable to pay tax on the goods or services received by him. The law casts the responsibility to pay tax on the person receiving the supply of goods or services rather than the person supplying the goods or services. This is called Reverse charge of tax. Case Study:  A is a Chartered Accountant. He provides consultancy on a taxation matter to B. Here, Law provides that B is liable to get registered and pay tax on the supply of services received by him from A. This is reverse charge wherein recipient is liable to pay tax.

UNIT 2 (PART2 &3) What is the basis of charges of GST? How GST levied in case of inter supply and intra supply. GST rates for various goods and services Exemption from GST, what are the goods and services exempted from GST, BASIS OF CHARGES OF GST

Who does it apply to? 

To every person who supplies goods and/or services of value exceeding Rs 20 lakh in a financial year. (Limit is Rs 10 lakh for some special category states). Compulsory registration for these. And GST must be paid when turnover exceeds Rs 20 lakh (Rs 10 lakh for some special category states).



To any person making inter-state taxable supply of goods and/or services



Every e-commerce operator



Every person who supplies goods and/or services, other than branded services, through ecommerce operator



Aggregators who supply services under their own brand name



Casual Taxable Person



Non-Resident Taxable Person



Person required to deduct/collect tax (TDS/TCS)



Input Service Distributor



Person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person.



Person required to pay tax under Reverse Charge



Person supplying the goods on behalf of other taxable person (eg. Agent)



GST does NOT apply to Agriculturists



GST does not apply to any person engaged exclusively in the business of supplying goods and/or services that are not liable to tax or are wholly exempt from tax under this Act

What is the GST framework as per the new law? GST is expected to replace a myriad of indirect taxes such as VAT, customs duty, Excise, CST, Service Tax, Entertainment Tax with a single tax called the Goods and Services Tax. 

Broadly there will be 2 forms of GST in India.



At the intra-state level (when goods travel within a state) and at the inter-state level (when goods travel between states).



At the intra-state level two types of GST shall be levied CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax).



At the inter-state level IGST (Or Integrated Goods and Services Tax) shall be levied.



Imports shall be considered as inter-state supply.



Exports shall be zero rated.



Supplies to SEZ will be Zero-rated

Will the new GST allow tax cascading benefits?

Many of us are aware that service tax and VAT have cascading benefits, which means you can avail credit of tax paid by you on inputs. For example in case of service tax – you levy service tax on services you sell and while depositing this tax you can take credit of service tax paid by you on services used as inputs. This cascading benefit shall also be available in case of GST. Here is how set off works in case of GST – IGST payments can be set off against – IGST, CGST, SGST on inputs CGST payments can be set off against – IGST and CGST on inputs SGST payments can be set off against – IGST and SGST on inputs

GST Exempted Goods: List of Goods Exempt Under GST                       

Live Animals Meat Fish, Meat and Fillets Eggs, Honey and Milk Products Non – Edible Animal Products Live Trees and Plants Vegetables Fruits and Dry Fruits Tea, Coffee and Spices Edible Grains Milling Industry Products Oil Seeds, Fruit and Part of Plants Tea & Coffee Extract & Essence Water, Mineral & Aerated Flours, Meals & Pellets Salts & Sands Fertilizers Rubber, Plates, Belt, Condensed Milk Fuel wood, Wood Charcoal Newsprint, Uncoated paper & paperboard Printed Books, Brochures, Newspapers Silk Worm Cocoon, Yarn, Waste & Woven Fabrics Wool Materials & Waste, Animal Hairs

         

Cotton Materials, Synthetics & Woven Fabrics Blankets & Bedsheets Artificial flowers, Wigs & False Beards Glasses, Mirrors, Flasks Hand Tools & Cutlery Industrial Machinery Balloons, Parachutes & Airlift Gear Medical, Chemical & Astronomy Pencil Lighter Toiletries Machinery Lab Chemicals Drugs Medicines

UNIT 3 The Place and time of supply and Input tax credit UNIT 3 (PART1) Location of supplier of goods and services, how to find place of supply of goods and services, problems on place of supply

HOW GST IS LEVIED IN CASE OF INTERSUPPLY AND INTRA SUPPLY Place of Supply of Goods

GST is a destination based tax, i.e., the goods/services will be taxed at the place where they are consumed and not at the origin. So, the state where they are consumed will have the right to collect GST. This, in turn, makes the concept of place of supply crucial under GST as all the provisions of GST revolves around it. Place of supply of goods under GST defines whether the transaction will be counted as intrastate or inter-state, and accordingly levy of SGST, CGST & IGST will be determined.

Place of Supply When There is Movement of Goods

Example 1- Intra-state sales Mr. Raj of Mumbai, Maharashtra sells 10 TV sets to Mr. Vijay of Nagpur, Maharashtra The place of supply is Nagpur in Maharashtra. Since it is the same state CGST & SGST will be charged. Example 2-Inter-State sales Mr. Raj of Mumbai, Maharashtra sells 30 TV sets to Mr. Vinod of Bangalore, Karnataka The place of supply is Bangalore in Karnataka. Since it is a different state IGST will be charged. Example 3- Deliver to a 3rd party as per instructions Anand in Lucknow buys goods from Mr. Raj in Mumbai (Maharashtra). The buyer requests the seller to send the goods to Nagpur (Maharashtra) In this case, it will be assumed that the buyer in Lucknow has received the goods & IGST will be charged. Place of supply: Lucknow (UP)

GST: IGST

Ex ample 4- Receiver takes the goods ex-factory Mr. Raj of Mumbai, Maharashtra gets an order of 100 TV sets from Sales Heaven Ltd. of Chennai, Tamil Nadu. Sales Heaven mentions that it will arrange its own transportation and take TV sets from Mr. Raj ex-factory Place of supply: Chennai, Tamil Nadu GST: IGST Although the goods are received ex-factory i.e in Maharashtra by the recipient, the movement of the goods terminates for delivery to the recipient only at Chennai, Tamil Nadu. Irrespective of whether the supplier or the recipient is actually undertaking the movement of goods, the place of supply is the location of goods where movement of goods terminates for delivery to the recipient which is at Chennai. Hence, IGST is applicable.

Example 5 – E-commerce sale

Mr. Raj of Mumbai, Maharashtra orders a mobile from Amazon to be delivered to his mother in Lucknow (UP) as a gift. M/s ABC (online seller registered in Gujarat) processes the order and sends the mobile accordingly and Mr. Raj is billed by Amazon.   Similar to example 3, it will be assumed that the buyer in Mumbai has received the goods & IGST will be charged. Place of supply: Mumbai, Maharashtra GST: IGST No Movement of Goods

Example 1- No movement of goods Sales Heaven Ltd. (Chennai) opens a new showroom in Bangalore. It purchases a building for showroom from ABC Realtors (Bangalore) along with pre-installed workstations Place of supply: Bangalore GST: CGST& SGST There is no movement of goods (work stations), so the place of supply will be the location of such goods at the time of delivery (handing over) to the receiver. Note: There is no GST on purchase of building or part thereof. RENT of commercial space attracts GST Example 2- Installing goods Strong Iron & Steel Ltd. (Jharkhand) asks M/s SAAS Constructions (West Bengal) to build a blast furnace in their Jharkhand steel plant Place of supply: Jharkhand GST: CGST & SGST Although M/s SAAS is in West Bengal, the goods (blast furnace) is being installed at site in Jharkhand which will be the place of supply. 

Note: M/s SAAS will have to be registered in Jharkhand to take up this contract. They can opt to register as a casual taxable person which will be valid for 90 days (extendable by 90 days more, on basis of a reasonable cause).

Goods Supplied on a Vessel/Conveyance

Example 1- Plane Mr. Ajay is travelling from Mumbai to Delhi by air. He purchases coffee and snacks while on the plane. The airlines is registered in both Mumbai and Delhi. Place of supply: Mumbai GST: CGST& SGST The food items were loaded into the plane at Mumbai. So, place of supply becomes Mumbai. Example 2- Plane- Business travel Mr. Ajay is travelling from Mumbai to Chennai by air on behalf of his company Ram Gopal and Sons (registered in Bangalore). In the plane he purchases lunch. The airlines is registered in Mumbai & Chennai. Place of supply: Mumbai GST: CGST & SGST

The food items were loaded into the plane at Mumbai. So, place of supply becomes Mumbai. It does not matter where the buyer is registered. In most cases CGST & SGST is charged because most airlines have a pan-India presence and will be registered in all states. Example 3- Train Mr. Vinod is travelling to Mumbai via train. The train starts at Delhi and stops at certain stations before Mumbai. Vinod boards the train at Vadodara (Gujarat) and promptly purchases lunch on board. The lunch had been boarded in Delhi. Place of supply: Delhi GST: CGST & UTGST The food items were loaded into the train at Delhi. So, place of supply becomes Delhi. CGST & SGST is charged because Indian railways has a pan-India presence and will be registered in all states. It does not matter where the buyer is registered.

Imports & Exports The place of supply of goods:

 



imported into India will be the location of the importer.



exported from India shall be the location outside India.

Example 1- Import Ms. Malini imports school bags from China for her shop (registered in Mumbai) Place of supply: Mumbai GST: IGST Example 2- Export Ms. Anita (Kolkata) exports Indian perfumes to UK Place of supply: Kolkata GST: Exempted

How do you determine 'location of supplier of services'? Location of supplier of services as defined in section 2(15) of the IGST Act is the  mirror image of location of recipient of services.  (i) Where a supply is made from a place of business for which the registration has been obtained, the location of such place of business; (ii) Where a supply is made from a place other than the place of business for which registration has been obtained  (a fixed establishment elsewhere), the location of such fixed establishment; (iii) Where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and (iv) In absence of such places, the location of the usual place of residence of the supplier

What is the significance of taxing inter-State supplies? GST is primarily a destination-based consumption tax. The place of supply of a particular transaction, coupled with the location of the supplier, will determine the nature of the tax to be paid by a tax payer. If the location of the supplier and place of supply are in the same State (including UTs with legislature) the transaction will be an intra-State transaction and the tax payer will be liable to pay State + Central Tax. If they are in different States the transaction will become inter-State transaction and the tax payer will be liable to pay Integrated Tax and part of the Integrated Tax collected transferred to the State where the consumption takes place i.e. the State where the place of supply is located.

Transactions between two UTs and transactions to/from UT from/to another State are also treated as inter-State transactions liable to Integrated Tax. Transactions within a UT without legislature would be charged to UT GST or UT Tax. The inter-State supplier will be allowed to avail credit of various GST taxes paid on his purchases. This will allow maintenance of uninterrupted ITC chain at all-India level.

What do you mean by inter-State supply? Section 7 of the IGST Act provides that following supplies will be inter-State supplies: a) Supply of goods and/or services where location of the supplier and place of supply are in two different States; or two different Union territories; or a State and a Union territory b) Supply of goods and/or services where location of the supplier is in India and the place of supply is outside India (normally referred to as exports). c) Supply of goods imported into the territory of India, till they cross the customs frontier of India d)  Supply of services imported into the territory of India e) Supply of goods and/or services to or by a SEZ developer or a SEZ unit f) Any supply of goods and/or services in the taxable territory, not being an intra-State supply and not covered above (e.g. supply from a State to a place/ location to a place located in EEZ/Continental shelf and vice-versa)

What to do you understand by 'location of supplier of goods'? Unlike in the case of services, the location of supplier of goods and location of recipient of goods are not defined either in the CGST Act or the IGST Act. These terms are to be understood certainly not as the location of their registered office but as the place where the supplier holds control over the goods ready to deliver. In other words, location of supplier may be understood as the location of goods ready for supply. The word ‘location’ in this phrase refers to the site or premises (geographical point) where the supplier is situated, with the goods in his control, ready to be supplied. While for tangible goods, application of above rule will not pose much challenge, for intangible goods such as copyright, trademark, literacy work etc. the legal maxim ‘Mobila Sequuntur Personam’ has emerged as a means to determine the situs of property.

How do you determine 'location of supplier of services'?

Location of supplier of services as defined in section 2(15) of the IGST Act is the  mirror image of location of recipient of services.  (i) Where a supply is made from a place of business for which the registration has been obtained, the location of such place of business; (ii) Where a supply is made from a place other than the place of business for which registration has been obtained  (a fixed establishment elsewhere), the location of such fixed establishment; (iii) Where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and (iv) In absence of such places, the location of the usual place of residence of the supplier

UNIT 3 (PART 2) Time of supply, rules for determination of time or supply of goods and services, time of supply in case of change in GST rate. Value of taxable supply. Time, Place and Value of Supply Under GST, 3 types of taxes can be charged in the invoice. SGST and CGST in case of an intra-state transaction and IGST in case of an interstate transaction. But deciding, whether a particular transaction is inter or intrastate is not an easy task. Think about an online training where customers are sitting in different parts of the world. Say in case, hotel services, where the receiver may have an office in another state and may be visiting the hotel only temporarily, or where goods are sold on a train journey passing through different states. To help address some of these situations, the IGST act lays down certain rules which define whether a transaction is inter or intrastate. These rules are called the place of supply rules. Why are time place and value of supply important? Time of supply means the point in time when goods/services are considered supplied’. When the seller knows the ‘time’, it helps him identify due date for payment of taxes.

Place of supply is required for determining the right tax to be charged on the invoice, whether IGST or CGST/SGST will apply. Value of supply is important because GST is calculated on the value of the sale. If the value is calculated incorrectly, then the amount of GST charged is also incorrect   1. Time of Supply Time of supply means the point in time when goods/services are considered supplied’. When the seller knows the ‘time’, it helps him identify due date for payment of taxes. CGST/SGST or IGST must be paid at the time of supply. Goods and services have a separate basis to identify their time of supply. Let’s understand them in detail. A. Time of Supply of Goods Time of supply of goods is earliest of: 1. Date of issue of invoice 2. Last date on which invoice should have been issued 3. Date of receipt of advance/ payment*. For example: Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th January. The payment was received on 31st January. The goods were supplied on 20th January. *Note:  GST is not applicable to advances under GST. GST in Advance is payable at the time of issue of the invoice.   Let us analyze and arrive at the time of supply in this case. Time of supply is earliest of – 1. Date of issue of invoice = 15th January 2. Last date on which invoice should have been issued  = 20th January Thus the time of supply is 15th January. What will happen if, in the same example an advance of Rs 50,000 is received by Mr. X on 1st January?

The time of supply for the advance of Rs 50,000 will be 1st January(since the date of receipt of advance is before the invoice is issued). For the balance Rs 50,000, the time of supply will be 15th January. B. Time of Supply for Services Time of supply of services is earliest of: 1. Date of issue of invoice 2. Date of receipt of advance/ payment. 3. Date of provision of services (if invoice is not issued within prescribed period) Let us understand this using an example: Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued on 20th January and the payment for the same was received on 1st February. In the present case, we need to 1st check if the invoice was issued within the prescribed time. The prescribed time is 30 days from the date of supply i.e. 31st January. The invoice was issued on 20th January. This means that the invoice was issued within a prescribed time limit. The time of supply will be earliest of – 1. Date of issue of invoice = 20th January 2. Date of payment = 1st February This means that the time of supply of services will be 20th January. C. Time of Supply under Reverse Charge In case of reverse charge the time of supply for service receiver is earliest of: 1. Date of payment* 2. 30 days from date of issue of invoice for goods (60 days for services) *w.e.f. 15.11.2017 ‘Date of Payment’ is not applicable for goods and applies only to services.   For example: M/s ABC Pvt. Ltd undertook service of a director Mr. X worth Rs. 50,000 on 15th January. The invoice was raised on 1st February. M/s ABC Pvt Ltd made the payment on 1st May. The time of supply, in this case, will be earliest of –

1. Date of payment = 1st May 2. 60 days from date of date of invoice = 2nd April Thus, the time of supply of services is 2nd April. 2. Place of supply It is very important to understand the term ‘place of supply’ for determining the right tax to be charged on the invoice.    Here is an example: Location of Service Receiver

Place of supply

Nature of Supply

GST Applicable

Maharashtra

Maharashtra

Intra-state

CGST + SGST

Maharashtra

Kerala

Inter-state

IGST

A. Place of Supply of Goods Usually, in case of goods, the place of supply is where the goods are delivered. So,  the place of supply of goods is the place where the ownership of goods changes. What if there is no movement of goods. In this case, the place of supply is the location of goods at the time of delivery to the recipient. For example: In case of sales in a supermarket, the place of supply is the supermarket itself. Place of supply in cases where goods that are assembled and installed will be the location where the installation is done. For example, A supplier located in Kolkata supplies machinery to the recipient in Delhi. The machinery is installed in the factory of the recipient in Kanpur. In this case, the place of supply of machinery will be Kanpur. B. Place of Supply for Services Generally, the place of supply of services is the location of the service recipient. In cases where the services are provided to an unregistered dealer and their location is not available the location of service provider will be the place of provision of service. Special provisions have been made to determine the place of supply for the following services:



Services related to immovable property



Restaurant services



Admission to events



Transportation of goods and passengers



Telecom services



Banking, Financial and Insurance services.

In case of services related to immovable property, the location of the property is the place of provision of services. Example 1: Mr. Anil from Delhi provides interior designing services to Mr. Ajay(Mumbai). The property is located in Ooty(Tamil Nadu). In this case, place of supply will be the location of the immovable property i.e. Ooty, Tamil Nadu. Example 2: A registered taxpayer offers passenger transport services from Bangalore to Hampi. The passengers do not have GST registration. What will be the place of supply in this case? The place of supply is the place from where the departure takes place i.e. Bangalore in this case. 3. Value of Supply of Goods or Services Value of supply means the money that a seller would want to collect the goods and services supplied. The amount collected by the seller from the buyer is the value of supply. But where parties are related and a reasonable value may not be charged, or transaction may take place as a barter or exchange; the GST law prescribes that the value on which GST is charged must be its ‘transactional value’. This is the value at which unrelated parties would transact in the normal course of business. It makes sure GST is charged and collected properly, even though the full value may not have been paid

UNIT 3 (PART 3) Input tax credit provision, apportionment of input tax credit, claim of input tax credit, problems on input tax credit. Input Tax Credit – ITC One of the fundamental features of GST is the seamless flow of input credit across the chain (from the manufacture of goods till it is consumed) and across the country. In this article, we will cover the following topicsThe CBIC has notified that the input tax credit that can be availed by a registered person in respect of invoices or debit notes, will be restricted to 20% of of the eligible credit available in respect of invoices or debit notes as per details uploaded by the suppliers.

1. What is input tax credit? Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount. Here’s howWhen you buy a product/service from a registered dealer you pay taxes on the purchase. On selling, you collect the tax. You adjust the taxes paid at the time of purchase with the amount of output tax (tax on sales) and balance liability of tax (tax on sales minus tax on purchase) has to be paid to the government. This mechanism is called utilization of input tax credit. For example- you are a manufacturer: a. Tax payable on output (FINAL PRODUCT) is Rs 450 b. Tax paid on input (PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 150 in taxes.

2. Who can claim ITC? ITC can be claimed by a person registered under GST only if he fulfills ALL the conditions as prescribed. a. The dealer should be in possession of tax invoice b. The said goods/services have been received

c. Returns have been filed. d. The tax charged has been paid to the government by the supplier. e. When goods are received in installments ITC can be claimed only when the last lot is received. f. No ITC will be allowed if depreciation has been claimed on tax component of a capital good A person registered under composition scheme in GST cannot claim ITC.

3. What can be claimed as ITC? ITC can be claimed only for business purposes. ITC will not be available for goods or services exclusively used for: a. Personal use b. Exempt supplies c. Supplies for which ITC is specifically not available

4. How to claim ITC? All regular taxpayers must report the amount of input tax credit(ITC) in their monthly GST returns of Form GSTR-3B. The table 4 requires the summary figure of eligible ITC, Ineligible ITC and ITC reversed during the tax period. The format of the Table 4 is given below:

A taxpayer can claim ITC on a provisional basis in the GSTR-3B to an extent of 20% of the eligible ITC reported by suppliers in the auto-generated GSTR-2A return. Hence, a taxpayer should cross-check the GSTR-2A figure before proceeding to file GSTR-3B. A taxpayer could have claimed any amount of provisional ITC until 9 October 2019. But, the CBIC has notified

that from 9 October 2019, a taxpayer can only claim not more than 20% of the eligible ITC available in the GSTR-2A as provisional ITC. This means taht the amount of ITC reported in the GSTR-3B from 9 October 2019 will be the total of the actual ITC in GSTR-2A and the provisional ITC being 20% of the actual eligible ITC in the GSTR-2A. Hence, matching of the purchase register or expense ledger with the GSTR-2A becomes crucial.

5. Reversal of Input Tax Credit ITC can be availed only on goods and services for business purposes. If they are used for nonbusiness (personal) purposes, or for making exempt supplies ITC cannot be claimed . Apart from these, there are certain other situations where ITC will be reversed. ITC will be reversed in the following cases1) Non-payment of invoices in 180 days– ITC will be reversed for invoices which were not paid within 180 days of issue. 2) Credit note issued to ISD by seller– This is for ISD. If a credit note was issued by the seller to the HO then the ITC subsequently reduced will be reversed. 3) Inputs partly for business purpose and partly for exempted supplies or for personal use – This is for businesses which use inputs for both business and non-business (personal) purpose. ITC used in the portion of input goods/services used for the personal purpose must be reversed proportionately. 4) Capital goods partly for business and partly for exempted supplies or for personal use – This is similar to above except that it concerns capital goods. 5) ITC reversed is less than required- This is calculated after the annual return is furnished. If total ITC on inputs of exempted/non-business purpose is more than the ITC actually reversed during the year then the difference amount will be added to output liability. Interest will be applicable. The details of reversal of ITC will be furnished in GSTR-3B. To find out more about the segregation of ITC into business and personal use and subsequent calculations, please visit our article.

6. Reconciliation of ITC ITC claimed by the person has to match with the details specified by his supplier in his GST return. In case of any mismatch, the supplier and recipient would be communicated regarding discrepancies after the filling of GSTR-3B. Learn how to go about reconciliation through our article on GSTR-2A Reconciliation. Please read our article on the detailed explanation of the reasons for mismatch of ITC and procedure to be followed to apply for re-claim of ITC.

7. Documents Required for Claiming ITC The following documents are required for claiming ITC: 1. Invoice issued by the supplier of goods/services 2. The debit note issued by the supplier to the recipient (if any) 3. Bill of entry 4. An invoice issued under certain circumstances like the bill of supply issued instead of tax invoice if the amount is less than Rs 200 or in situations where the reverse charge is applicable as per GST law. 5. An invoice or credit note issued by the Input Service Distributor(ISD) as per the invoice rules under GST. 6. A bill of supply issued by the supplier of goods and services or both.

8. Special cases of ITC a. ITC for Capital Goods ITC is available for capital goods under GST. However, ITC is not available for- i. Capital Goods used exclusively for making exempted goods ii. Capital Goods used exclusively for non-business (personal) purposes Note: No ITC will be allowed if depreciation has been claimed on tax component of capital goods. b. ITC on Job Work A principal manufacturer may send goods for further processing to a job worker. For example, a shoe manufacturing company sends half-made shoes (upper part) to job workers who will fit the soles. In such a situation the principal manufacturer will be allowed to take credit of tax paid on the purchase of such goods sent on job work. ITC will be allowed when goods are sent to job worker in both the cases: 1. From principal’s place of business 2. Directly from the place of supply of the supplier of such goods However, to enjoy ITC, the goods sent must be received back by the principal within 1 year (3 years for capital goods). c. ITC Provided by Input Service Distributor (ISD) An input service distributor (ISD) can be the head office (mostly) or a branch office or registered office of the registered person under GST. ISD collects the input tax credit on all the purchases made and distribute it to all the recipients (branches) under different heads like CGST, SGST/UTGST, IGST or cess. d. ITC on Transfer of Business

This applies in cases of amalgamations/mergers/transfer of business. The transferor will have available ITC which will be passed to the transferee at the time of transfer of business.

UNIT 4 (PART 1) What are signification and process of registration, which is liable for registration under GST, procedure of registration? What’s the benefit of registering a business under GST? Registration under Goods and Service Tax (GST) regime will confer following advantages to the business: 

Legally recognized as a supplier of goods or services.



Proper accounting of taxes paid on the input goods or services which can be utilized for payment of GST due on the supply of goods or services or both by the business.



Legally authorized to collect tax from his purchasers and pass on the credit of the taxes paid on the goods or services supplied to purchasers or recipients.

What is the liability for GST registration in India? The aggregate turnover requirement for GST registration is as below: Region

Aggregate Turnover Liability to Register Liability for Payment of Tax East Rs 9 Lakhs Rs 10 Lakhs

North India Rest of India  

Rs 19 Lakhs

Rs 20 Lakhs

What is the registration process for GST in India? GST registration process will be online through a portal maintained by Central Government of India. Govt. will also appoint GSPs (GST Suvidha Providers) to help businesses with the registration process. Based on the information provided by GSTN, registration process looks like this:

1. The applicant will need to submit his PAN, mobile number and email address in Part A of Form GST REG–01 on the GSTN portal or through Facilitation centre (notified by the board or commissioner). 2. The PAN is verified on the GST Portal. Mobile number and E-mail address are verified with a one-time password (OTP). Once the verification is complete, the applicant will receive an application reference number on the registered mobile number and via Email. An acknowledgement should be issued to the applicant in FORM GST REG-02 electronically. 3. Applicant needs to fill Part- B of Form GST REG-01 and specify the application reference number. Then the form can be submitted after attaching required documents. 4. If additional information is required, Form GST REG-03 will be issued. Applicant needs to respond in Form GST REG-04 with required information within 7 working days from the date of receipt of Form GST REG-03. 5. If you have provided all required information via Form GST REG-01 or Form GST REG04, the registration certificate in Form GST REG –06 for the principal place of business as well as for every additional place of business will be issued to the applicant. If the person has multiple business verticals within a state he can file a separate application for the registration in Form GST REG-01 for each business verticals.If the details submitted are not satisfactory, the registration application is rejected using Form GST REG-05.The applicant who is required to deduct TDS or collect TCS shall submit an application in Form GST REG – 07 for registration. If he is no longer liable to deduct or collect tax at source then the officer may cancel and communicate the cancel of registration. Documents required for GST registration: 

PAN card of the Company



Proof of constitution like partnership deed, Memorandum of Association (MOA) /Articles of Association (AOA), certificate of incorporation.



Details and proof of place of business like rent agreement or electricity bill



A cancelled cheque of your bank account showing the name of account holder, MICR code, IFSC code and bank branch details



Authorized signatory like List of partners with their identity and address proof in case of partnership firm or List of directors with their identity and address proof in case of company. 

Can a person without GST registration claim ITC and collect tax?

No. A person without GST registration can neither collect GST from his customers nor claim any input tax credit of GST paid by him. What will be the effective date of registration? Where the application for registration has been submitted within thirty days from the date on which the person becomes liable to registration, the effective date of registration shall be the date of his liability for registration. Where an application for registration has been submitted by the applicant after thirty days from the date of his becoming liable to registration, the effective date of registration shall be the date of grant of registration. In case of suomoto registration, i.e. taking registration voluntarily while being within the threshold exemption limit for paying tax, the effective date of registration shall be the date of the order of registration.  Who are the persons liable to take a Registration under the Model GST Law? Any supplier who carries on any business at any place in India and whose aggregate turnover exceeds threshold limit as prescribed above in a year is liable to get himself registered. However, certain categories of persons mentioned in Schedule III of MGL are liable to be registered irrespective of this threshold. An agriculturist shall not be considered as a taxable person and shall not be liable to take registration. Which are the cases in which registration is compulsory? As per paragraph 5 in Schedule III of MGL, the following categories of persons shall be required to be registered compulsorily irrespective of the threshold limit: a) persons making any inter-State taxable supply; b) casual taxable persons; c) persons who are required to pay tax under reverse charge; d) non-resident taxable persons; e) persons who are required to deduct tax under section 37; f) persons who supply goods and/or services on behalf of other registered taxable persons whether as an agent or otherwise; g) input service distributor; h) persons who supply goods and/or services other than branded services, through electronic commerce operator; i) every electronic commerce operator; j) an aggregator who supplies services under his brand name or his trade name; and

k) such other person or class of persons as may be notified by the Central Government or a State Government on the recommendations of the Council. What is the time limit for taking a Registration under Model GST Law? Any person should take a Registration, within thirty days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed. If a person is operating in different states, with the same PAN number, whether he can operate with a single Registration? No. Every person who is liable to take a Registration will have to get registered separately for each of the States where he has a business operation and is liable to pay GST in terms of Subsection (1) of Section 19 of Model GST Law. Whether a person having multiple business verticals in a state can obtain for different registrations? Yes. In terms of Sub-Section (2) of Section 19, a person having multiple business verticals in a State may obtain a separate registration for each business vertical, subject to such conditions as may be prescribed. Is there a provision for a person to get himself voluntarily registered though he may not be liable to pay GST? Yes. In terms of Sub-section (3) of Section 19, a person, though not liable to be registered under Schedule III, may get himself registered voluntarily, and all provisions of this Act, as are applicable to a registered taxable person, shall apply to such person. Is possession of a Permanent Account Number (PAN) mandatory for obtaining a Registration? Yes. Every person shall have a Permanent Account Number issued under the Income Tax Act, 1961 (43 of 1961) in order to be eligible for grant of registration under Section 19 of the Model GST Law. However, as per section 19 (4A) of MGL, PAN is not mandatory for a non-resident taxable person who may be granted registration on the basis of any other document as may be prescribed. Whether the Department through the proper officer, can suo-moto proceed with registration of a Person under this Act? Yes. In terms of sub-section (5) of Section 19, where a person who is liable to be registered under this Act fails to obtain registration, the proper officer may, without prejudice

to any action that is, or may be taken under the MGL, or under any other law for the time being in force, proceed to register such person in the manner as may be prescribed. Whether the proper Officer can reject an Application for Registration? Yes. In terms of sub-section 7 of MGL, the proper officer can reject an application for registration after due verification. However, it is also provided in subsection 8 of Section 19, the proper officer shall not reject the application for registration or the Unique Identity Number without giving the notice to show cause and without giving the person a reasonable opportunity of being heard. Whether the Registration granted to any person is permanent? Yes, the registration Certificate once granted is permanent unless surrendered, cancelled, suspended or revoked. Is it necessary for the UN bodies to get registration under MGL? All UN bodies Consulate or Embassy of foreign countries and any other class of persons so notified would be required to obtain a unique identification number (UIN) from the GST portal. The structure of the said ID would be uniform across the States in conformity with GSTIN structure and the same will be common for the Centre and the States. This UIN will be needed for claiming the refund of taxes paid by them and for any other purpose as may be prescribed in the GST Rules. What is the responsibility of the taxable person supplying to UN bodies? The taxable supplier supplying to these organizations is expected to mention the UIN on the invoices and treat such supplies as supplies to another registered person (B2B) and the invoices of the same will be uploaded by the supplier. Is it necessary for the Govt. organization to get registration? A unique identification number (ID) would be given by the respective state tax authorities through GST portal to Government authorities / PSUs not making outwards supplies of GST goods (and thus not liable to obtain GST registration) but are making inter-state purchases. Who is a Casual Taxable Person? Casual Taxable Person has been defined in Section 2 (21) of MGL. It means a person who occasionally undertakes transactions in a taxable territory where he has no fixed place of business. Who is a Non-resident Taxable Person?

A taxable person residing outside India and coming to India to occasionally undertake the transaction in the country but has no fixed place of business in India is a non-resident taxable person in terms of Section 2 (69) of the MGL. What is the validity period of the Registration certificate issued to a Casual Taxable Person and non-Resident Taxable person? The certificate of registration issued to a “casual 34 taxable person” or a “non-resident taxable person” shall be valid for a period of ninety days from the effective date of registration. However, the proper officer, at the request of the said taxable person, may extend the validity of the aforesaid period of ninety days by a further period not exceeding ninety days. Is there any Advance tax to be paid by a Casual Taxable Person and Non-resident Taxable Person at the time of obtaining registration under this Special Category? Yes. While a normal taxable person does not have to make any deposit of money to obtain registration, a casual taxable person or a non-resident taxable person shall, at the time of submission of application for registration under sub-section (1) of section 19, make an advance deposit of tax in an amount equivalent to the estimated tax liability of such person for the period for which the registration is sought. If registration is to be extended beyond the initial period of ninety days, an advance additional amount of tax equivalent to the estimated tax liability is to be deposited for the period for which the extension beyond ninety days is being sought. Whether Amendments to the Registration Certificate is permissible? Yes. In terms of Section 20, the proper officer may on the basis of such information furnished either by the registrant or as ascertained by him, approve or reject amendments in the registration particulars in the manner and within such period as may be prescribed. It is to be noted that permission of the proper officer for making amendments will be required for only certain core fields of information, whereas for the other fields, the registrant can himself carry out the amendments. Whether Cancellation of Registration Certificate is permissible? Yes. Any Registration granted under this Act may be cancelled by the Proper Officer, in circumstances mentioned in Section 21 of the MGL. The proper officer may, either on his own motion or on an application filed, in the prescribed manner, by the registered taxable person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed. Whether cancellation of Registration under CGST Act means cancellation under SGST Act also?

Yes. The cancellation of registration under one Act (say CGST Act) shall be deemed to be a cancellation of registration under the other Act (i.e. SGST Act). (Section 21 (6)) Can the proper Officer Cancel the Registration on his own? Yes, in certain circumstances specified under section 21(2) of MGL, the proper officer can cancel the registration on his own. Such circumstances include not filing a return for a continuous period of six months (for a normal taxable 36 person) or three months (for a compounding taxpayer), and not commencing business within six months from the date of registration. However, before cancelling the registration, the proper officer has to follow the principles of natural justice. (Section 21 (4)) Who is an ISD? ISD stands for Input Service Distributor and has been defined under Section 2 (56) of MGL. It is basically an office meant to receive tax invoices towards receipt of input services and further distribute the credit to supplier units proportionately. Whether all assesses /dealers who are already registered under existing central excise/service tax/vat laws will have to obtain fresh registration? No. GSTN shall migrate all such assesses /dealers to the GSTN network and shall issue GSTIN number and password. They will be asked to submit all required documents and information required for registration in a prescribed period of time. Failure to do so will result in cancellation of GSTIN number. The service tax assesses having centralized registration will have to apply afresh in the respective states wherever they have their businesses  Is there any system to facilitate smaller dealers or dealers having no IT infrastructure? In order to cater to the needs of taxpayers who are not IT savvy, following facilities shall be made available:Tax Return Preparer (TRP): A taxable person may prepare his registration application /returns himself or can approach the TRP for assistance. TRP will prepare the said registration document/return in prescribed format on the basis of the information furnished to him by the taxable person. The legal responsibility of the correctness of information contained in the forms prepared by the TRP will rest with the taxable person only and the TRP shall not be liable for any errors or incorrect information. Facilitation Centre (FC): He shall be responsible for the digitization and/or uploading of the forms and documents including summary sheet duly signed by the Authorized Signatory and given to it by the taxable person. After uploading the data on common portal using the ID and Password of FC, a print-out

of acknowledgement will be taken and signed by the FC and handed over to the taxable person for his records. The FC will scan and upload the summary sheet duly signed by the Authorized Signatory. Is there any facility for digital signature in the GSTN registration? Taxpayers would have the option to sign the submitted application using valid digital signatures (if the applicant is required to obtain DSC under any other prevalent law then he will have to submit his registration application using the same). For those who do not have a Digital signature, alternative mechanisms will be provided in the GST Rules on Registration. What will be the time limit for the decision on the online application? If the information and the uploaded documents are found in order, the State and the Central authorities shall approve the application and communicate the approval to the common portal within three common working days. The portal will then automatically generate the Registration Certificate. In case no deficiency is communicated to the applicant by both the tax authorities within three common working days, the registration shall be deemed to have been granted [section 19(9) of MGL] and the portal will automatically generate the Registration Certificate. What will be the time of response by the applicant if any query is raised in the online application? If during the process of verification, one of the tax authorities raises some query or notices some error, the same shall be communicated to the applicant and to the other tax authority through the GST Common Portal within 3 common working days. The applicant will reply to the query / rectify the error/answer the query within a period informed by the concerned tax authorities (Normally this period would be seven days). On receipt of additional document or clarification, the relevant tax authority will respond within seven common working days. What is the process of the refusal of registration? In case registration is refused, the applicant will be informed about the reasons for such refusal through a speaking order. The applicant shall have the right to appeal against the decision of the Authority. As per sub-section (10) of section 19 of MGL, any rejection of an application for registration by one authority (i.e. under the CGST Act / SGST Act) shall be deemed to be a rejection of an application for registration by the other tax authority (i.e. under the SGST Act / CGST Act).

UNIT 4(2)

What are invoice under GST, importance of tax invoice under GST, contents of tax invoice, bill of supply, receipt voucher, contents of revised tax invoice, problems on tax invoice, what are credit and debit notes What is Debit Note, Credit Note and Revised Invoice? How to Revise Already Issued Invoices Under GST? What is Debit Note and Credit Note? When goods supplied are returned or when there is a revision in the invoice value due to goods (or services) not being up to the mark or extra goods being issued a Debit Note or Credit Note is issued by the supplier and receiver of goods and services. A debit note or a Credit Note can be issued in 2 situations – 1. When the amount payable by buyer to seller decreases –There can be a change in the value of goods after the goods are delivered and invoice is issued by the seller. This can be due to a return of goods or due to the bad quality of the goods delivered, etc. In this case, the value of goods decreases due to which a Debit Note is issued by the purchaser to the seller. The Debit Note provides details of the amount of money debited from the sellers’ account and also states the reason for the same. The reason behind this – In the purchaser’s books of account the seller will have a credit balance. When a debit note is issued the credit balance of the Sellers account decreases, thus reducing the seller’s balance. It means that that lesser amount is required to be paid by the buyer to the seller to settle his liability. Thus debit note reduces the liability for the buyer. The seller issues a Credit Note as a response or acknowledgment to the Debit Note 2. When the amount payable by buyer to seller increases-When the value of invoice increases due to extra goods being delivered or the goods already delivered have been charged at an incorrect value a Debit Note is required to be issued. The Debit Note, in this case, is issued by the seller to the buyer. And the buyer as an acknowledgment to the receipt of Debit Note issues a Credit Note. The reason behind this – In the seller’s books of account the buyer will have a debit balance. When a debit note is issued the debit balance of the buyer’s account increases. It means that more amount is required to be paid by the buyer to the seller to settle his liability. Thus, credit note increases the liability for the buyer.

Debit Note under GST Cases when Debit note is to be issued by supplier: Cases Where Debit note has to be issued by the Supplier A.

Original tax invoice has been issued and taxable value in the invoice is less than actual taxable value.

B.

Original tax invoice has been issued and tax charged in the invoice is less than actual tax to be paid.

Note

Debit note will include a supplementary invoice.

Credit Note under GST

Cases when Credit note is to be issued by supplier:

Cases Where Credit note has to be issued by the Supplier A

Original tax invoice has been issued and taxable value in the invoice exceeds actual taxable value.

B

Original tax invoice has been issued and tax charged in the invoice exceeds actual tax to be paid.

C

Recipient returns the goods to the supplier

D

Services are found to be deficient

Note :

Credit note will include a supplementary invoice

Details to be covered in Debit Note and Credit Note The debit note/ credit note shall contain the following particulars: 1. name, address, and GSTIN of the supplier, 2. nature of the document, 3. a consecutive serial number containing only alphabets and/or numerals, unique for a financial year, 4. date of issue of the document, 5. name, address and GSTIN/ Unique ID Number, if registered, of the recipient, 6. name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered, 7. serial number and date of the corresponding tax invoice or, as the case may be, bill of supply, 8. the taxable value of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient, and 9. signature or digital signature of the supplier or his authorized representative.

Debit Note or Credit Note can be issued anytime i.e there is no time limit for issuing the Debit Note. Also, Debit Notes and Credit Notes issue have to be declared in the GST returns filed in the following month for the month in which document is issued The details have to be declared on earlier of the following dates: 

September following the end of the year in which such supply was made,



the date of filing of the relevant annual return

Note: The tax liability will be adjusted but no reduction in output tax liability of the supplier will be permitted if the incidence of tax and interest on such supply has been passed on to any other person. What is a Revised Invoice under GST? Under GST, all the taxable dealers will have to apply for provisional registration and carry out all the formalities post which they will get the permanent registration certificate. For all the invoices issued between the period – 1. Date of implementation of GST 2. Date of issue of Registration certificate the dealers will have to issue a revised invoice against the invoice already issued between the said period. The revised invoice will have to be issued within one month from the date of issue of the registration certificate. What are supplementary invoices and their uses? Supplementary tax invoice is a type of invoice that is issued by a taxable person in case where any deficiency is found in a tax invoice already issued by a taxable person. It can be in form of a debit note or a credit note. What is the difference between Revised invoice and Supplementary invoice? The difference between a revised invoice and a supplementary invoice can be enumerated as follows:

Particulars

Revised Invoice

Supplementary Invoice

Meaning

Revised invoice may be issued by a Supplementary tax invoice has to be issued by taxable person in relation to any a taxable person in case where any deficiency invoice already issued by him. is found in a tax invoice already issued by a taxable person.

Period covered

The period starting from the Not based on period but invoice specific effective date of registration till the date of issuance of certificate of registration.

Issued whom

to

Only to registered person.

To registered taxable persons as well as unregistered persons

UNIT 4(PART 3) Return and tax payment of GST GST Payments and Refunds Current GST return filing requires that every month, once GSTR-1 is filed to report Sales, one must file GSTR-3B to report the ITC and make necessary GST Payment. Also if a refund is required to be claimed the same can be done by filing relevant refund related forms. A. Payments – 1. What are payments to be made under GST? Under GST the tax to be paid is mainly divided into 3 – 

IGST – To be paid when interstate supply is made (paid to center)



CGST – To be paid when making supply within the state (paid to center)



SGST – To be paid when making supply within the state (paid to state)

CIRCUMSTANCES

CGST

SGST

IGST

Goods sold from Delhi to Bombay

NO

NO

YES

Goods sold within Bombay

YES

YES

NO

Goods sold from Bombay to Pune

YES

YES

NO

Apart from the above payments a dealer is required to make these payments – 

Tax Deducted at Source (TDS) – TDS is a mechanism by which tax is deducted by the dealer before making the payment to the supplier

This provision is currently relaxed and will not be applicable to notified by the government. 

Reverse Charge – The liability of payment of tax shifts from the supplier of goods and services to the receiver. To know more about reverse charge check out our article ‘Know all about Reverse Charge under GST‘



Interest, Penalty, Fees and other payments

  2. How to calculate the GST payment to be made? Usually, the Input Tax Credit should be reduced from Outward Tax Liability to calculate the total GST payment to be made. TDS/TCS will be reduced from the total GST to arrive at the net payable figure. Interest & late fees (if any) will be added to arrive at the final amount. Also, ITC cannot be claimed on interest and late fees. Both Interest and late fees are required to be paid in cash. The way the calculation is to be done is different for different types of dealers – Regular Dealer A regular dealer is liable to pay GST on the outward supplies made and can also claim Input Tax Credit (ITC) on the purchases made by him. The GST payable by a regular dealer is the difference between the outward tax liability and the ITC.

Composition Dealer The GST payment for a composition dealer is comparatively simpler. A dealer who has opted for composition scheme has to pay a fixed percentage of GST on the total outward supplies made. GST is to be paid based on the type of business of a composition dealer.

3. Who should make the payment? These dealers are required to make GST payment – 1. A Registered dealer is required to make GST payment if GST liability exists. 2. Registered dealer required to pay tax under Reverse Charge Mechanism(RCM).

3. E-commerce operator is required to collect and pay TCS 4. Dealers required deducting TDS 4. When should GST payment be made? GST payment is to be made when the GSTR 3 is filed i.e by 20th of the next month.

5. What are the electronic ledgers?

These ledgers are maintained on the electronically on GST Portal.

  6. How to make GST payment? GST payment can be made in 2 ways – 

Payment through Credit  Ledger –

The credit of ITC can be taken by dealers for GST payment. The credit can be taken only for payment of Tax. Interest, penalty and late fees cannot be paid by utilizing ITC. 

Payment through Cash Ledger –

GST payment can be made online or offline. The challan has to be generated on GST Portal for both online and offline GST payment. Where tax liability is more than Rs 10,000, it is mandatory to pay taxes Online. 7. What is the penalty for non-payment or delayed payment? If GST is short paid, unpaid or paid late interest at a rate of 18% is required to be paid by the dealer. Also, a penalty to be paid. The penalty is higher of Rs. 10,000 or 10% of the tax short paid or unpaid. B. Refunds –

1. What is GST refund? Usually when the GST paid is more than the GST liability a situation of claiming GST refund arises. Under GST the process of claiming a refund is standardized to avoid confusion. The process is online and time limits have also been set for the same. 2. When can the refund be claimed? There are many cases where refund can be claimed. Here are some of them – Excess payment of tax is made due to mistake or omission. 

Dealer Exports (including deemed export) goods/services under claim of rebate or Refund



ITC accumulation due to output being tax exempt or nil-rated



Refund of tax paid on purchases made by Embassies or UN bodies



Tax Refund for International Tourists



Finalization of provisional assessment

3. How to calculate GST refund? Let’s take a simple case of excess tax payment made. Mr. B’s GST liability for the month of September is Rs 50000. But due to mistake, Mr. B made a GST payment of Rs 5 lakh. Now Mr. B has made an excess GST payment of Rs 4.5 lakh which can be claimed as a refund by him. The time limit for claiming the refund is 2 years from the date of payment. 4. What is the time limit for claiming the refund? The time limit for claiming a refund is 2 years from relevant date. The relevant date is different in every case. Here are the relevant dates for some cases –

Reason for claiming GST Refund

Relevant Date

Excess payment of GST

Date of payment

Export or deemed export of goods or Date of despatch/loading/passing the frontier services ITC accumulates as output is tax exempt or nil-rated

Last date of financial year to which the credit belongs

Finalization of provisional assessment

Date on which tax is adjusted

Also if refund is paid with delay an interest of 24% p.a. is payable by the government.

UNIT 5 (PART1) Introduction of custom duty-features objects. Taxable event for import and export duty, Types of custom duties, goods under customs act, rate of customs duty applicable What is the Meaning of Customs Duty in India and its Types Planning to sell across the border, but can’t figure out what customs duty is? Don’t worry, we’ve got you covered. Read on to know all about customs duty in India and its types. Customs Duty refers to the tax that is imposed on the transportation of goods across international borders. It is a kind of indirect tax that is levied by the government on the imports and exports of goods. Companies that are into the export-import business need to abide by these regulations and pay the customs duty as required. Put differently, the customs duty is a kind of fees that are collected by the customs authorities for the movement of goods and services to and from that country. The tax that is levied for the import of products is referred to as import duty, while the tax levied on the goods that are exported to some other country is known as export duty. The primary purpose of customs duty is to raise revenue, safeguard domestic business, jobs, environment and industries etc. from predatory competitors of other countries. Moreover, it helps reduce fraudulent activities and circulation of black money.

On what factors is the customs duty calculated? The customs duty is calculated based on various factors such as the following:

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The place of acquisition of the good. The place where the goods were made. The material of the goods. Weight and dimensions of the good etc. Moreover, if you are bringing a good for the first time in India, you must declare it as per the customs rule.

Customs Duty in India India has a well-developed taxation structure. The tax system in India is mainly a three-tier system which is based between the Central, State Governments and the local government organisations. Customs duty in India falls under the Customs Act 1962 and Customs Tariff Act of 1975. Since the implementation of India’s new taxation system, GST, integrated goods and valueadded service tax (IGST) is being charged on the value of any imported goods. Under IGST, all products and services are taxed under four basic slabs of 5 percent, 12 percent, 18 percent, and 28 percent. Furthermore, the office of the Director General of Foreign trade validates the registration of all importers before they engage in any import and export activities.

Structure of a Customs Duty in India

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Usually, the goods that are imported to the country are charged customs duty along with educational cess. For industrial products, the rate has been slashed to 15%. The customs duty is evaluated on the value of the transaction of the goods. The basic structure of import and export tariffs in India include: Basics Customs Duty Additional Duty Special additional duty Education assessment or cess Other state level taxes The additional duty is applied to all imports except for wine, spirits and alcoholic beverages. Furthermore, the special additional duty is calculated on top of the basics duty and additional duty. Apart from these, the percent of cess charged is 3% on most of the goods.

Types of Customs Duty in India Customs duties are levied on almost all goods that are imported into the country. On the other hand, export duties are levied on a few items as mentioned in the Second Schedule. Customs

duties are not levied on life-saving drugs, fertilizers and food grains. Customs duties are divided into different taxes, such as: 1. Basic Customs Duty: This is levied on imported items that are part of Section 12 of the Customs Act, 1962. The tax rate is levied as per First Schedule to Customs Tariff Act, 1975. 2. Additional Customs Duty: It is levied on goods that are stated under Section 3 of the Customs Tariff Act, 1975. The tax rate is more or less similar to the Central Excise Duty charged on goods produced within India. This tax is subsumed under GST now. 3. Protective Duty: This is levied for the purpose of protecting indigenous businesses and domestic products against overseas imports. The rate is decided by the Tariff Commissioner. 4. Education Cess: This is charged at 2%, with an additional higher education cess 1%, as included in the customs duty. 5. Anti-dumping Duty: This is levied if a particular good is being imported is below fair market price. 6. Safeguard Duty: This is levied of the customs authorities feel that the exports of a particular good can damage the economy of the country.

How to Calculate Customs Duty The customs duties are usually calculated on Ad valorem basis on the value of the goods. The value of goods is calculated according to the regulations stated under Rule 3(i) of the Customs Valuation Rules, 2007. You can also make use of the customs duty calculator that is available on the CBEC website. As part of the computerized and electronic service drive in the year 2009, India started a web-based system known as ICEGATE. ICEGATE is the abbreviation of Indians Customs Electronic Commerce/Electronic Data Interchange gateway. It provides a platform for the calculation of duty rates, import-export goods declaration, shipping bills, electronic payment, verification of import and export licenses. The Indian classification of the Customs Duty is based on the Harmonized Commodity Description (HS) and Coding system. The HS codes are of 6 digits. The IGST that applies to all imports and exports is charged on the value of the good along with the primary customs duty on the good. The structure is as follows: Value of the imported goods+ Basics Customs Duty + Social Welfare Surcharge = Value based on which IGST is calculated

In case there is a confusion regarding the common valuation factors, the following factors are taken into consideration as per exception: Comparative Value Method to calculate the transaction value of the same items as per Rule 4. Comparative Value Method to calculate the transaction value of the same items as per Rule 5.

Deductive Value Method to calculate the sale price of an item in importing country as per Rule 7. Computed Value Method that is used as per the fabrication materials and profit as per Rule 8. Fallback Method used to calculate goods with higher flexibility as per Rule 9. The Central Board of Excise and Customs under the Ministry of Finance manages the customs duty process in the country. International trade has huge returns if done in the right way.

UNIT5 (2) Anti-dumping duty on dumped article, Methods of valuation of customs. Rate of exchange for customs valuation. Q. 1. What is anti-dumping? What is its purpose in International Trade? Ans. Dumping is said to occur when the goods are exported by a country to another country at a price lower than its normal value. This is an unfair trade practice which can have a distortive effect on international trade. Anti-dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect. Thus, the purpose of anti-dumping duty is to rectify the trade distortive effect of dumping and re-establish fair trade. The use of anti-dumping measure as an instrument of fair competition is permitted by the WTO. In fact, anti-dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry. It provides relief to the domestic industry against the injury caused by dumping. Q.2. Does dumping mean cheap or low priced imports? Ans. Often, dumping is mistaken and simplified to mean cheap or low priced imports. However, it is a misunderstanding of the term. On the other hand, dumping, in its legal sense, means export of goods by a country to another country at a price lower than its normal value. Thus, dumping implies low priced imports only in the relative sense (relative to the normal value), and not in absolute sense. Import of cheap products through illegal trade channels like smuggling does not fall within the purview of anti-dumping measures.

Q.3. Is anti-dumping a measure of protection for domestic industry?

Ans. Anti-dumping, in common parlance, is understood as a measure of protection for domestic industry. However, anti-dumping measures do not provide protection per se to the domestic industry. It only serves the purpose of providing remedy to the domestic industry against the injury caused by the unfair trade practice of dumping. In fact, anti-dumping is a trade remedial measure to counteract the trade distortion caused by dumping and the consequential injury to the domestic industry. Only in this sense, it can be seen as a protective measure. It can never be regarded as a protectionist measure.

Six Methods of Determining Customs Valuation. What Is Transaction Value? Importers should use this method when determining the value for duty on the price paid or payable for imported goods with consideration to certain adjustments. This method is the most commonly used. When selling goods for export to Canada to a purchaser in Canada, the Transaction valuation applies. We have outlined the difference between the price paid and payable below: Price Paid is the total of all payments made directly or indirectly by the purchaser to the vendor.  Price Payable, however, is the total of all payments that are owed and made directly or indirectly by the purchaser to the vendor. You must use the transaction value method whenever possible to determine the customs value of imported goods. What Is Transaction Value Of Identical Goods? When you cannot use transaction value, you must use an established value for duty of identical goods. Identical goods are considered the same in all respects as the goods being appraised. They have one exception however and that is for minor differences in appearance. These difference cannot affect the value of the goods. For goods to qualify, production would have to be in the same country as the identical goods. What Is Transaction Value Of Similar Goods? When you cannot use transaction and identical goods, you must use an established value for duty of similar goods. For goods to qualify, the value of goods must be: 

Closely resembling the similar goods

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Capable of performing the same function

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Commercially interchangeable

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Produced in the same country and by the same manufacturer as the similar goods

What Is Deductive Method Of Valuation? If none of the above methods apply, the deductive value method is the next method to consider. The basis of this method is on the Canadian importers most common selling price (per unit) of the goods sold to Canadian customers. What Is Computed Method Of Valuation? The computed value is the cost of production, profit and general expenses of the imported goods. These must be realized by producers in the exporting country when selling the same type of goods to Canadian importers. What Is Residual Method Of Valuation? The residual method does not identify specific requirements for determining a value for duty. Instead, the value is based on one of the other methods (considered in sequence). It also requires the least amount of adjustment. The value must be fair market, and reflect commercial reality. In the end, the final value for duty can also be influenced by: 

The relation between the parties involved.( i.e. a related buyer and seller)

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Condition where the goods were provided to the Canadian consignee at no charge (i.e. consignment)

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Allowable additions or deductions to the value of the goods

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Used goods

UNIT 5 (PART3) Customs procedure, exclusions from custom value, self-assessment of custom duty, GST on import and export of goods. Imports and Exports Under GST Foreign trade is one of the indices of a country’s economic growth. India is one of the fastest growing economies in the world. Our country’s trade is booming. India exported goods worth

$274.6 billion in 2016-17, 4.7% higher than $262.2 billion in FY16. Trade deficit in 2016-17 was $105.7 billion. With the government’s decision to roll out Goods and Services tax (GST) in 2017, a wave of apprehension ran through the business sector. Arguably GST’s implementation will change the way of doing business in India, and impact the trade (import-export of goods) as well. But will this impact be negative or positive? Prior to understanding GST’s effect on trade, let’s quickly delve into the basics of GST. GST is a single tax levied on the supply of goods and services, right from the manufacturer to the consumer. It will replace a host of the current central taxes and duties, and state cesses. Under the GST regime, credits of input taxes paid at each stage will be available in the subsequent stage of value addition. GST in India will have three components: Central Goods and Service Tax (CGST), State Goods and Service Tax (SGST) and Integrated Goods and Service Tax (IGST). Centre would levy and collect CGST, and States would levy and collect SGST on all transactions within a State. The IGST would be equivalent to CGST plus SGST. IGST will ensure flow of input tax credit from one State to another. No tax will be payable on export of goods or services as per the GST law. Credit of input tax credit will be available and same will be available as refund to the exporters. However, the scenario is different in case of imports. Under the GST regime: 

Import of goods and services will be treated as inter-state supplies. IGST will be levied on the import of goods and services into the country. Basic Customs Duty (BCD) will be levied on the import of goods in addition to IGST.

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With regard to import of services, the service receiver will be liable to pay tax on the service if such services are provided by a person residing outside India. This practice is similar to the current provision of reverse charge, wherein service receiver is required to pay tax and file return.

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GST will follow the Transaction Value based Valuation Principal from the current customs law. IGST will be computed on the transaction value of the goods. 

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Tax paid during import will be available as a credit under “Import and Sale” model. Also refund of Special Additional Duty (SAD) which is available now, after doing specific compliance, no such restrictions will be part of GST. 

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The tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed, as GST is a destination-based tax.

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The current customs import tariff that are loaded with multiple exemption notifications, will be reviewed and possibly withdrawn, or converted into a refund mechanism. This exercise could change the structure of export-linked duty exemption schemes under the FTP where the duty exemptions may be relieved from payment of BCD. However, IGST may not be exempted.

To conclude – With majority of the taxes being subsumed by GST, exports will receive a solid boost. At the same time, this single tax will help reduce the cost of imports. What is self-assessment in import customs clearance in India? What is self-assessment scheme? Self-assessment scheme of import clearance was introduced by customs authorities to simplify import procedures and expedite import clearance. Under self-assessment scheme, importer himself declares the details of goods with rate of duty applicable based on previously cleared bill of entry. The customs department assess the value of goods and examination of goods based on production of such bill of entry previously cleared. Now, self-assessment formalities and procedures are applicable only in major customs house locations for the following categories: a) Import shipments of government authorities, public sector undertakings and importers who have proven identity and satisfactory past performance. b) Import shipment of goods which are not restricted or prohibited c) Goods importing do not require any import license or customs clearance permit d) Assessment procedures do not involve original examination of goods and no test bond or end use bond are involved in assessment procedures. How do self-assessment procedures of imports take place at a customs location where in no electronic media of filing available? The procedures of self-assessment under manual filing: There will be a green colored band at the edge of bill of entry to differ it from other normal bill of entries. After noting of self-assessment bill of entry, the clerk in customs department allots serial number and affixes the date stamp with signature. The rate of duty with amount of duty to be paid is mentioned in bill of entry. The importer or his customs house broker pays the duty in the customs treasury as per his declaration of duty under imported goods if applicable. Once after payment of duty under imported goods under self-assessment, the concerned customs officials detaches the original copy of bill of entry and the remaining copies with other documents are forwarded to appraiser in charges of examination who completes assessment procedures based on the previous assessed bill of entry under same type of goods imported.   If found satisfied

with the declaration by importer with the said previous document, proper officer of customs department allow ‘pass out’ procedures as normal import clearance procedures