BASICS OF GST PRESENTATION BY ROHAN SHAH ADVOCATE

BASICS OF GST PRESENTATION BY ROHAN SHAH- ADVOCATE ICAI-GST CONFERENCE - 09. 04. 2017

AGENDA CONSTITUTIONAL FRAMEWORK OF GST TAXES TO BE SUBSUMED UNDER GST CONCEPT OF CGST AND SGST/ UTGST RATES OF GST COUNCIL

GST – THE JOURNEY SO FAR Idea of GST takes shape 2000 Date of Presidential assent to 101 st Constitutional Amendment Act 08. 09. 201 6 GST Council set up 15. 09. 201 6 Central GST Bills passed by Lok Sabha 31. 03. 201 7 Central GST Bills passed by Rajya Sabha Lok Sabha passed Taxation Laws (Amendment) Bill, 2017 06. 04. 201 7 01. 07. 2017 – PROPOSED DATE OF INTRODUCTION OF GST 06. 04. 201 7

CONSTITUTION (101 st AMENDMENT) ACT, 2016 – KEY AMENDMENTS … Article 246 A v Parliament and State legislatures/Union Territories empowered to legislate on GST (CGST & SGST/UTGST respectively) v Centre exclusively empowered to levy GST on inter-state movement of goods and/ or services (IGST) v States for the first time empowered to levy tax on services/Union empowered to levy tax on intra-state supply (sale) of goods Article 269 A v Parliament to levy GST on supplies in the course of inter-state trade or commerce v Supply of goods or services in the course of import into India- to be treated as supplies in the course of inter-state or commerce v trade Clause 18: Union to provide compensation to the States for loss of revenue arising on account of implementation of the GST for a period of five years [GST (Compensation to States) Bill, 2017 has been

… CONSTITUTION (101 st AMENDMENT) ACT, 2016 – KEY AMENDMENTS … Article 279 A v GST Council to be constituted by the President within 60 days from the coming into force of the Constitution Amendment v GST Council constituted on 15. 09. 2016 Article 366(12 A) v "“goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption” v Article 286 prohibits States from taxing supply of goods/ and or services: v Outside the state v In the course of import into India v In the course or export out of India v Petroleum products, natural gas and aviation turbine fuel to be subsumed under GST from a later date (to be notified based on recommendation of the GST Council)

… CONSTITUTION (101 st AMENDMENT) ACT, 2016 – KEY AMENDMENTS … Prior to the 101 st amendment After the 101 st amendment Entry 84 [List 1] “ 84. Duties of excise on tobacco and other goods “ 84. Duties of excise on the following goods manufactured or produced in India except— (a) alcoholic or produced in India, namely: — (a) petroleum crude; (b) liquors for human consumption; (b) opium, Indian hemp high speed diesel; (c) motor spirit (commonly known as and other narcotic drugs and narcotics, but including petrol); (d) natural gas; (e) aviation turbine fuel; and (f) medicinal and toilet preparations containing alcohol or tobacco and tobacco products. ” any substance included in sub-paragraph (b) of this entry” Entry 83 [List 1] No change “ 83. Duties of customs including export duties” Entry 92 [List 1] “ 92. Taxes on the sale or purchase of newspapers and Omitted

… CONSTITUTION (101 st AMENDMENT) ACT, 2016 – KEY AMENDMENTS … Prior to the 101 st amendment After the 101 st amendment Entry 92 C [List 1] Omitted “ 92 C. Taxes on services. ” Entry 52 [List II] Omitted “ 52. Taxes on the entry of goods into a local area for consumption, use or sale therein. ” Entry 54 [List II] “ 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92 A of List I. ” “ 54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter. State trade or commerce or sale in the course of

… CONSTITUTION (101 st AMENDMENT) ACT, 2016 – KEY AMENDMENTS … Prior to the Amendment After the Amendment Entry 55 [List 1 I] Omitted “ 55. Taxes on advertisements other than advertisements published in the newspapers [and advertisements broadcast by radio or television. ” Entry 62 [List 1 I] “ 62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling. ” “ 62. Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council. ”

… CONSTITUTION (101 st AMENDMENT) ACT, 2016 – KEY AMENDMENTS … Constitution prior to 101 st amendment Constitution after the 101 st amendment v Article 246 – Parliament had exclusive power to v Article 246 A(1)- Both Parliament & State make laws including tax laws in respect of legislatures have the power to makes laws with matters specified in List 1 of Schedule VII (‘Union respect to goods and services tax (‘GST’). List’). v Sea change in legislative powers- power to levy v Article 246 – State had exclusive power to make laws including tax laws in respect of matters tax no longer derived from List I or II of Schedule VII but directly from Article 246 A. specified in List 1 I of Schedule VII (‘State List’). v Controversies regarding overlap/conflict in taxing powers between Central and State qua GST will not arise.

PRESENT INDIRECT TAXES TO BE SUBSUMED INTO GST CENTRAL EXCISE DUTY SERVICE TAX ADDITIONAL EXCISE DUTIES VAT/ CST CVD CENTRAL Taxes on lotteries, bottling, gambling Cesses & Surcharges STATE SURCHARGE Entertainment Tax (except on local bodies) SAD Luxury Tax CESSES Entry Tax Excise on M &TP

DUAL GST… v ARTICLE 246 A - Parliament and State legislatures/Union Territories empowered to legislate on GST (CGST & SGST/UTGST respectively) v Union and States/UT can simultaneously levy GST on the same transaction v Taxable event under GST is the supply of goods/services: v CGST + SGST/UTGST- on intra-state supply of goods/services v Where location of supplier is in territorial waters of India/place of supply is in the territorial waters – the ‘place of supply’ shall be deemed to be in the coastal state/UT where the nearest appropriate base line is located v IGST on inter-state supply of goods/services v Import of goods/services to be treated as inter-state supplies – IGST will be levied

…DUAL GST v Exports will be zero-rated v Supplies to SEZ developers/SEZ units are also zero-rated v ITC credit/refund of ITC available in case of zero rated supplies

GST – TAX RATES v Rate structure for individual goods and/or services has not been finalized v Expected to be finalized by end May, 2017 - after next meeting of GST Council v Proposals as regards rate of duty v Separate tax rate for precious metals v Cess over the peak rate of 28% on specified luxury and sin goods v Ceiling rates prescribed under various bills are as under: v CGST bill – 20% v IGST bill – 40% v Cess under GST (Compensation to States) Bill- rates as prescribed in the Schedule v The rate slabs which have been discussed are set out below: v Various goods/services will be fitted into these rate slabs based on the principle of ‘revenue equivalence’ 5% 12% 18% 28%

GST COUNCIL … v Empowerment to constitute GST Council under Article 279 A of the Constitution v GST Council constituted on 15. 09. 2016 v GST Council shall make recommendations to the Union and States on: v Taxes, cesses and surcharges levied by the Union and States which to be subsumed into GST v Goods and services which may be subjected or exempted from GST v Principles of levy, apportionment of IGST and principles that govern the place of supply v Floor rates with bands of GST v Other issues v GST council is to be guided by the need for: v a harmonized structure of goods and services tax /development of harmonized national market

… GST COUNCIL … v Twelve meetings held so far – decisions by consensus arrived at on various issues like: v Threshold limit for exemption to be Rs. 20 lakh (Rs. 10 lakh for special category States) v Compounding threshold limit to be Rs. 50 lakh – not available to inter-State suppliers, service providers (except restaurant service) & specified category of manufacturers v Government may convert existing area based exemption schemes into reimbursement based scheme v Cess over the peak rate of 28% on specified luxury and sin goods v Rules on registration, payment, return, refund, invoice, composition levy, input tax credit, transitional provisions and valuation were recommended.

… GST COUNCIL … v To ensure single interface – all administrative control over v 90% of taxpayers having turnover below Rs. 1. 5 cr. vest with State tax administration v 10% of taxpayers having turnover below of Rs. 1. 5 cr. vest with Central tax administration v taxpayers having turnover above Rs. 1. 5 cr. to be divided equally between Central and State tax administration v CGST, UTGST, IGST, SGST & GST Compensation Law recommended v Central laws have been passed by both houses of Parliament- Presidential assent awaited v Formula for calculating compensation finalized

… GST COUNCIL … v Whether recommendations of GST Council are binding on States? v Whether States can theoretically ignore recommendations of GST Council and formulate their own basis for GST related laws? v Inter-play between the GST Council and the powers of the Legislature has been discussed by the 73 rd Finance Standing Committee – reference made to opinion of the Attorney General: “This is an important point which has been raised and the short answer to it is that it is certainly open to Parliament to approve any recommendation. However, this does not mean that the GSTC recommendations will have no value. Having regarding to the nature of the Constitution of GSTC, the Council would have performed useful role in making recommendations but the ultimate authority whether to accept such recommendations can and must rest only in the Legislatures, namely, Parliament and the State Legislatures. In this view of the matter, the setting up of the GSTC does not strike at the root of the legislative powers over Finance. The powers of the legislature over Finance are sacrosanct and are not affected by the setting up of the GSTC. . ”

… GST COUNCIL … v Whether States can opt out of the GST Structure? v Since many of the legislative entries like Entry 52, 54, 55 and 62 of List II have been omitted, /substantially amended the State’s power to taxation will not be under Article 246 read with the entries in List II but under Article 246 A v Article 246 A necessarily has to be read in conjunction with the other GST related amendments to the Constitution v Consequently the States will not have an option to opt out of the GST scheme v Will otherwise lose their taxing powers

… GST COUNCIL v Under Article 279(11)- GST Council to establish a mechanism to adjudicate any dispute: v Between the Government of India and one or more States; or v Between the Government of India and any State or States on one side and one or more States on the other side; or v Between two or more States, arising out of the recommendations of the Council or implementation thereof v Under the present Constitutional scheme, the Supreme Court under Article 131 to the exclusion of all other courts, has the original jurisdiction in any dispute. v Between States, between Centre and States, or involving Centre and one or more States on one side and one or more States on the other side v Such power is subject to other provisions of the Constitution v The dispute should involve a question on which the existence or extent of a legal right depends v The modalities of dispute resolution require to be adequately evolved for a successful GST

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