Goods and GST Bill passed

[Ganeshan Kalyani]

Dear All,

GST Bill is passed in Rajya Sabha on 03. 08.2016.

A panel under chief economic adviser Arvind Subramanian has recommended a revenue-neutral rate of 15-15.5%, with a standard rate of 17-18% be levied on most goods and all services.

But, there has been no agreement yet on rates of various goods and services, which remains a tricky issue. According to the Bill, passed in the Lok Sabha in May 2015, the rates were to be decided by a GST council headed by the central finance minister with state finance ministers as members.

Let us wait.

Thanks.

[Ganeshan Kalyani]

GST compensation cess, may also be leviable on certain luxury and demerit goods under the Goods and Services Tax (Compensation to States) Cess Act, 2017.

[Ganeshan Kalyani]

The value of the goods for the purpose of levying integrated tax shall be, assessable value plus Customs Duty levied under the Act, and any other duty chargeable on the said goods under any law for the time being in force as an addition to, and in the same manner as, a duty of customs.

[Ganeshan Kalyani]

The value of the imported article for the purpose of levying cess shall be, assessable value plus Basic Customs Duty levied under the Act, and any sum chargeable on the goods under any law for the time being, in force as an addition to, and in the same manner as, a duty of customs. The integrated tax paid shall not be added to the value for the purpose of calculating cess.

[Ganeshan Kalyani]

Importer would not be required to pay the Integrated tax at the time of removal of goods from a customs station to a warehouse.

[Ganeshan Kalyani]

Input tax credit of the integrated tax paid at the time of import shall be available to the importer and the same can be utilized by him as Input Tax credit for payment of taxes on his outward supplies. The integrated tax shall, in essence, be a pass-through to that extent.

[Ganeshan Kalyani]

The Basic Customs Duty (BCD), shall however, not be available as input tax credit.

[Ganeshan Kalyani]

The place of supply of goods, imported into India shall be the location of the importer. Thus, if an importer, say is located in Rajasthan, the state tax component of the integrated tax shall accrue to the State of Rajasthan.

[Ganeshan Kalyani]

Buying a car is a long term decision and hence, a buyer looks around for every possible information available on any reduction in prices in near future before buying a car. Consumers planning to buy car are struggling to find answer to the question – Whether they should buy car before GST or after GST?

[Ganeshan Kalyani]

Cars will be taxed at the top rate plus a cess in the range of 1% to 15%. Small cars will be charged 1% cess on top of 28% tax, mid-sized cars will attract 3% cess and luxury cars 15% cess on top of the peak rate.

[Ganeshan Kalyani]

Luxury cars are likely to get cheaper under GST. Currently, a consumer bears 45-55%. Under GST, the tax incidence will come down to 42-43%.

[Ganeshan Kalyani]

In all likelihood, prices of luxury car/ SUVs will come down post implementation of GST owing to reduction in effective rate of tax.

[Ganeshan Kalyani]

Small cars currently carry effective tax rate of around 26-34% (including cascading effect of VAT) in case of petrol cars and 27-35% in case of diesel cars.

Under GST, petrol cars are supposed to be taxed at 29% and diesel cars at 31%. Clearly, there is not much change and thus, it may not translate into price hike.

[Ganeshan Kalyani]

Mid segment cars currently carry effective tax rate of around 40-48% (including cascading effect of VAT).

Under GST, mid segment cars are to be taxed at 40-43%. Again, there is not much change and thus, it may not translate into price hike.

[Ganeshan Kalyani]

Buyers of hybrid cars are in for a disappointment as these are proposed to be taxed at the highest GST rate bracket of 28% in addition to attracting of 15% cess. Keeping environmental concern in mind, it is only just and logical for government to bring subsidy in order to bring boost to Hybrid cars.

[Ganeshan Kalyani]

“This could act as a dampener for companies proposing to invest in hybrid technology and adversely impact sale of such vehicles, unless a subsidy is separately given by the Government to offset such tax incidence,” said Sarika Goel, tax partner at EY India

[Ganeshan Kalyani]

“We are waiting for an official notification on the GST rates and currently studying the effects that might emerge out of the GST implementation,” said Roland Folger, managing director and chief executive at Mercedes Benz India Pvt Ltd.

[Ganeshan Kalyani]

With the maximum cess on luxury cars getting capped at 15%, and with a GST rate of 28%, the maximum duty one is likely to pay is 43%, said Rajeev Pratap Singh, auto practice head at Deloitte Touche Tohmatsu India Pvt Ltd.

[Ganeshan Kalyani]

Units in Special economic zone (SEZ) have always been at the forefront of benefits and exemptions by Government. Under current scheme of things, SEZ Unit/ Developer is required to meet certain conditions and undertake specified compliance flowing through service tax law, VAT laws, Excise law etc to avail benefits/ exemptions. However, never ever SEZ Unit has been required to take a mandatory separate registration under any indirect tax law.

Come GST, things look very different. As per the registration rules under GST, a proviso has been created to Rule 1 mandating a SEZ Unit to take a separate registration under GST.

This interpretation is based on overall understanding and intention of registration provisions under GST. Every person (X Ltd.) is required to take registration in each state from supply is made. Also, this interpretation keeps government’s intention to track SEZ supplies and exemptions separately on track.

If we drill each word and put together harmonious interpretation with registration provisions in general – each person (person has been defined to be on PAN level/ entity level) having SEZ unit or units (seemingly it implies SEZ Unit or units in a state) in a Special economic Zone (here zone means SEZ authority which in all cases is one for one state) shall make separate registration.

Until there is no clarity, the subject matter is open to interpretation. Do share your views in comments section.

[Ganeshan Kalyani]

On the surface, provision creates a staunch requirement of separate registration for SEZ Unit/s from its other units as if it is a distinct business vertical.

On in depth reading, the provision creates ambiguity by sprouting following possible interpretations:

1. Each SEZ unit will be required to take separate registration
2. All SEZ units covered under one Zone will be required to take one common GST registration
3. All SEZ units in one particular state will be required to take one common GST registration

[Ganeshan Kalyani]

Lets discuss in brief what each one means for companies having SEZ and non-SEZ unit in light of freezed facts (for clarity of understanding):

Facts
Company: X Ltd. located in Haryana
No. of offices: 5 (4 SEZ and 1 Non-SEZ)
SEZ Units: 2 units in Infospace SEZ and 2 units in Silokhera SEZ

1. Each SEZ unit will be required to take separate registration
This means that X Ltd. will be required to take 5 GST registrations in Haryana – one each for 4 SEZ Units and 1 for non-SEZ unit.

This interpretation draws support from the fact that every SEZ compliance is unit-wise in existing regime as well.

2. All SEZ units covered under one Zone will be required to take one common GST registration
Based on this interpretation, X ltd will be required to take 3 registrations – one registration for 2 units in infospace, one for 2 units in Silokhera (remember, the provision reads “a person having a unit(s) in a Special Economic Zone.. shall make a separate application for registration) and one registration for non-SEZ unit.

This interpretation may have backing upon plain reading in dictionary terms but does not throw up any logical support.

3. All SEZ units in one particular state will be required to take one common GST registration
Based on this interpretation, X ltd will be required to take 2 registration – one registration for 4 SEZ units in Haryana and one for non-SEZ unit.

AI Summary

Goods and Services Tax consolidation creates a dual GST framework with GST Council oversight and a shared IT platform for compliance.
Goods and Services Tax establishes a destination based, dual tax framework subsuming central and state indirect levies, administered through a GST Council and implemented via a shared IT platform (GSTN). The model law sets out registration and return regimes, HSN/SAC classification by turnover bands, input tax credit carry forward, composition and reverse charge rules, refund and valuation procedures, compensation to states during transition, and institutional arrangements for cross empowerment, adjudication and dispute resolution.