Constitutional Framework of Indirect Taxes Before GST PDF

Constitutional Framework of Indirect Taxes before GST In India, the constitution is Supreme and all laws and actions of the Government are sub-ordinate to it. The constitution provides that no tax shall be levied or collected except by authority of law. The Structure of Government in India is fede...

Constitutional Framework of Indirect Taxes before GST In India, the constitution is Supreme and all laws and actions of the Government are sub-ordinate to it. The constitution provides that no tax shall be levied or collected except by authority of law. The Structure of Government in India is federal in nature. As per article 1(1) of constitution, India shall be union of States. There is a bifurcation of powers between union and states. Government of India (Central Government) has certain powers in respect of whole country. Each state (and union territory) has certain powers in respect of that particular state (Union territory). - Indian constitution India has a three-tier federal structure, comprising the following:- (a) The Union Government (b) The State Government (c) The Local Government The power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of Indian Constitution. The constitution consists of a preamble, 25 parts containing 448 articles and 12 Schedules. - Provisions of constitution regarding taxation The power to levy and collect taxes emerges from the constitution of India. The following are the significant provisions of the constitution regarding taxation: 1. Article 265: It states that no tax shall be levied or collected except by authority of law. In fact, it prohibits arbitrary collection of tax. 2. Article 246: The authority to enact law and levy taxes and duties is given by constitution vide Article 246. The Parliament may make laws for the whole of India or any part of the territory of India, the State legislature may make laws for whole or part of the State. 3. Seventh Schedule (to Article 246): The Seventh Schedule contains three lists which enumerate the matters under which the union and the State Governments have the authority to make laws. A) List I (Union List)(entries 82 to 92): The Central Government has the exclusive right to make laws in respect of any matter covered in this list. Parliament makes law in this regard. Some of the items in List I are defense of India, naval, military and air forces, atomic energy and mineral resources, central bureau of intelligence and investigation, railways, highways, currency, RBI, post office saving bank, taxes on income other than agricultural income, duties of customs, corporation tax, etc. b) List II (State List)(entries 45 to 63): It contains the matters in respect of which the State Government has the exclusive right to make laws. These matters include public order, police, local government, public health and sanitation, hospital, burials and burial grounds, crema- tion ground, libraries, water, fisheries, betting and gambling, etc. (c) List III (Concurrent List): It contains the matters in respect of which both Central & State Governments have powers to make laws. This list includes criminal laws, criminal procedure, marriage and divorce, contracts including partnership, agency, bankruptcy and insolvency, trust and trustees, trade unions, industrial and labour disputes, etc. Major Indirect Taxes out of the many Indirect Taxes provided by the constitution, major source of income for the government were excise duty levied on manufactured goods, customs duties levied on import of Goods, service tax levied on rendering of service and VAT levied on Sale of Goods. These major sources of income are summarized in the following manner. Old Structure 1.Excise Duty 2.Customs Duty 3.Service Tax 4.Sales Tax/VAT 1.Entry No. 84, List I, Schedule VII 2. Entry No. 83, List I, Schedule VII 3. Residuary En- try No. 97, List I, Schedule VII 4. Entry Nos. 54 of List II (State VAT) and 92A of List (Central Sales Tax) Taxable Event is Manufacture Taxable Event is Import & Export of Goods Taxable Event is rendering of Service Taxable Event is Transfer of owner- ship The value added tax (VAT) was introduced in India in 2005. It is a multi point system of taxation on sale of goods wherein a mechanism is provided to grant credit for tax paid on inputs. Under VAT, the tax is collected in Stages an transactions involving sale of goods. The input tax (i.e. paid on purchases) is rebated against output tax (i.e. tax payable on sales). Under the VAT system, the net tax payable is calculated in the following manner: VAT = Tax collected on sales - Tax paid on purchases What is Cascading Effect ? The cascading effect implies charging tax on tax. In other words, at the time of levy of tax, the total value is considered which is inclusive of all taxes paid up to that point. In this manner, if the tax is always charged on the selling price of the product, the burden of tax keeps on increasing at each point of sales. In this process, the effect of taxation magnifies as at each level tax is calculated on value, which includes taxes already levied and paid. The charging of tax on tax is called as ‘Cascading Effect of tax’.  VAT has eliminated cascading effect VAT has been developed to avoid cascading effect of taxes. This has become possible as tax is effec- tively charged only on value addition at each stage and not on the entire sale price. The cascading effect has been prevented through tax credit system, called as Input Tax Credit. Input Tax Credit If any registered dealer is purchasing goods within a particular state and has paid value added tax and subsequently the goods were sold in the same state, in that case such registered dealer shall be allowed to take credit for input tax, subject to certain conditions. In other words, the tax is im- posed at each stage on the entire Sales value and the tax paid at the earlier stage is allowed as set off. This credit availability is called as “Input Tax Credit”. For example: Mr. Bhuvan is a registered dealer and has purchased inputs worth ` 5,00,000 (plus VAT @ 4%). The actual sales in the month were ` 9,00,000 (plus VAT @ 10%). It means VAT paid on purchases = ` 20,000 [Calculated as ` 5,00,000 × 4%] Output VAT payable = ` 90,000 [Calculated as ` 9,00,000 × 10%] Since, VAT paid on purchases can be adjusted against output VAT payable; the net VAT payable for the month shall be ` 90,000 minus ` 20,000. It means after adjusting ITC, the net VAT liability is ` 70,000. Scope of input tax credit under VAT In Pre-GST era, the concept of ITC was prevailing in VAT, Excise and Service Tax. The following important points may be noted about the entitlement of ITC under VAT: It is allowed to a registered dealer. It is also allowed in respect at VAT paid on purchase of capital goods. The Central Sales Tax (CST) paid on purchases made from outside state is not allowed as ITC. It is allowed only if the purchases are made from a registered dealer. The ITC is not available in respect of purchases from a dealer who has opted for composition scheme. It goods have been used to manufacture the exempted goods, ITC is not available. Variants of VAT: VAT is divided into three variants such as gross product variants, income variants and consumption variants. Gross Product Variant: Under this variant, VAT credit is allowed only of VAT paid on raw materials other than capital goods. The merit of Gross product variant is the prevention of cascading effect due to allowance of VAT credit on non-capital goods The VAT paid on purchase of capital goods will not be eligible for credit and will therefore from part of cost of that capital goods. The depreciation portion includes some portion of Vat and also part of cost of final product. When tax is calculated on this Cost ,cascading effect still prevails. Income Variant : The VAT credit is allowed on all VAT paid on raw material and components. In case of Capital goods, VAT credit is allowed only to the extent of depreciation on them. It means, VAT credit on capital is apportioned to various years in the ratio of depreciation allowance on such capital assets in those years. Consumption Variant: Under this variant, 100% VAT credit is allowed of VAT paid on all raw materials and components as well as capital goods. Consider the following information a) Purchase of raw material and component (exclusive of VAT @4% 8,00,000 b) Purchase of machinery (Life 10 years) Exclusive of VAT @12.5% - 24,00,000 c) Direct and indirect expenses – 6,00,000 d) Profit margin 20% on total cost e) VAT on sales 12.5% Compute selling price and VAT payable under the three variants of VAT Methods of calculating VAT Addition Method: This method is based upon identification of value added that is aggregate at factor payment and profit. The payments made to all the factors of production are rent, depreciation, hire charges, interest on capital, wages, etc. these are called as factor payments VAT Liability = Tax Rate x Value Added b) Invoice Method: Under this method, the tax is levied on full sale price. But, the credit is given for tax paid on purchases. Thus effectively the taxed is levied only on value added. It may be noted that Invoice Method is the most common and popular method for computing the tax liability under VAT system. c) Subtraction Method: Under this method, the tax is paid on the difference between sale price and value of purchases. There is no question of tax credit as the tax has not been calculated on total value of goods sold. The subtraction method could be further analysed into direct subtraction method and indirect subtraction method. Direct Subtraction method = Aggregate value of sales exclusive of tax – Aggregate value of purchases exclusive of tax. Indirect Subtraction method = Tax inclusive value of sales – tax inclusive value of purchases. Defects in structure of InDirect taxes before GST over the period of almost six decades the prevailing indirect tax regime created complexities and showed several shortcomings forcing Government to overhaul the existing system. These short comings are summarised below: 1. Cascading Effect: Both central and state Government levy tax on the same goods. Former levy tax on manufacture of goods and the later levy VAT on sale of very same goods. State Government does not permit credit of excise duty paid by the manufacture to the dealer on sale of goods. Thus VAT is also payable on excise duty component of the price resulting in cascading effect. Similarly service tax is payable on rendering of service. No credit of service tax paid on input service used in selling of goods is provided by the state government. So tax is levied on tax. It boosted inflation. 2. Multiplicity of Tax/Cess: Multiple taxes were levied in pre GST regime like Excise duty, VAT, Entry tax, luxury tax, Entertainment tax, Service tax, octroi etc. These taxes were in additions to various cesses imposed by State and Central Government like krishi kalyan Cess, clean energy cess etc. All this made the tax structure very cumbersome. 3. Overlapping of Jurisdiction: over the years, distinction between goods and services has become hazy, due to which there is overlapping of state VAT and Central Service tax on transactions like works contract, food related services of restaurants, caterers, computer software, SIM cards, renting of movable property etc. In these cases it was difficult to judge whether the transaction was sale of goods or rendering of service. Therefore both the central and state Government would impose tax. 4. Rivalry amongst states: Pre-GST regime of indirect tax was not destination based tax but origin based tax. In that regime taxes are collected and utilized by the state administration where goods/services are transacted/manufactured or supplied. This would encourage state to provide sales tax/VAT relief to attract industries and at the same time discourage supply of goods from other state by imposing entry tax, octroi, luxury tax etc. on goods coming from other states. 5. Hindrance to Integrated market system: India despite being one nation could not develop into a national market due to invisible barriers of Central State tax, VAT, entry tax etc. as mentioned in last point. These invisible barriers were visible in the form of check posts on the boundaries of states.  6. Loss of Man and Truck hours: Due to check posts mounted by states on entry point million of man hours and Truck hours were lost Besides that huge corruption was involved which made logistics management a costly affairs. 7. Difficulty in Compliance for Taxpayers: As mentioned already pre GST regime had multi- plicity of Tax and consequently tax laws. Moreover each tax had a different taxable event like manufacture for Excise, VAT for sales etc. Also there were multiple of Tax authorities. Compliance required voluminous efforts on the part taxpayers. It also promoted Inspector raj. 8. Difficulty in Cross Verification of Credit availed by Assessee: Earlier it was difficult for the tax department to get the verification report from supplier of goods to know whether the supplier has issued particular invoice on the basis of which input tax credit has been taken by the purchaser. Due to lack of online data the verification was done off line. often the report of supplier was not received or received after considerable lapse of time. Many scrupulous dealer exploited this and availed fraudulent credit. 9. Tax Evasion: Burden of compliance, multiplicity of tax laws increased the propensity to evade taxes. Fudging of records, concealment of transaction, bribing the tax officials were the tools adopted to remain out of tax net. 10. Huge Amount of litigation: with multiple tax laws each having different taxable events result was lot of disputes regarding availment of credit, determining manufacture of goods, value of goods, classification of goods etc. Dispute settlement mechanism is almost choked with such disputes resulting in pendency of tax demands. RATIONALE FOR GST As mentioned in the preceding sections the six decade old indirect tax regime had become too cumbersome and obstructive for the growth of our Nation, a major overhaul was required. This came in the form of GST which was made effective from 1-7-2017. GST will subsume almost 17 central and state taxes and 21 cesses and bring nation under united, common market with simplified tax structure, with emphasis on greater self compliance environment. It shall ignite the growth of economy through a comprehensive but simple indirect tax regime which, aims at enlarging tax base not by coercion but compliance, ensures vertical equity of taxes yet lowers overall tax rates. GST in based on the concept of Value Added Tax (VAT) whereby the cascading effect is extinguished completely. Also GST is a consumption and “destination based” tax system, unlike the earlier System which was based on origin of sale or manufacture. This feature reduces the regressive impact of indirect taxes. So GST brings benefits to all the stakeholders namely industry, Government and consumer. Benefits to the government GST aims to make India a Common market with common tax rates and procedures. It will boost foreign investment and “Make in India” campaign The states will be benefited due to improvement in investment cult in the country The uniform SGST and IGST rates actually reduce the incentive for tax evasion It will bring buoyancy to the government revenue by widening the tax base and improving the tax payer compliance. Benefits to trade and Industry: a. The multiplicity of indirect taxes has been reduced b. By allowing a set off of prior stage taxes for the transactions across the entire value chain, GST leads to mitigation of ill effects of cascading. c. Due to uniformity in tax rates, the common national market has been developed d. The export has been classified as zero rated supply, it will boost the exports. Benefits to Customer: a. It is a relatively simple tax system b. On Account of mitigation of cascading effect, there is a reduction in prices of goods and services c. The pricing structure is uniform through the country d. The taxation system is more transparent. Benefits of GST 1. Integrated National Market: GST aims to make India a common market with common tax rates and procedures and remove the economic barriers thus paving the way for an integrated economy at the national level. This will ensure seam less and smooth movement of goods and service across the nation. 2. Elimination of Cascading Effect: Cascading of tax occurs when each successive transfer is being taxed inclusive of previous tax levied. At certain occasions, a particular activity is taxed by both Center and State Government which leads to duality of taxes. This results in cascading effects of Taxes. GST will overcome the problem of tax cascading through Input Tax Credit Mechanisms and ultimate burden of taxes to be paid would be on the consumer of Goods and Services. 3. Removal of Multiplicity of Taxes: GST will remove all the multiple taxes which are levied in the present regime. Duties & Taxes like Excise Duty. Value Added Tax, Entry Tax, Luxury Tax, Entertainment Tax, octroi, and Services Tax shall subsume under GST. There shall remain only one tax called GST. It will bring transparency and ease of doing business in India.  4. Increase in GDP: GST will certainly bring ease of doing business in India. It is expected that the Ease of Doing Business Index of India which remains around 63 (in 2020) shall improve gradually. It will certainly bring trust and faith in the taxation regime, leading to huge capital inflow from Foreign Investors. There shall be boom in the manufacturing as well as service sector leading to GDP Growth. 5. Efficient Administration by Government: GST is a fully automated tax regime. From filing of returns to refunds to assessment proceedings everything shall be online. There shall be least physical interaction between the taxpayer and the revenue authorities. online System is set to bring transparency, lower corruption and better administration by the Government. Structure of GST Dual model of GST Central Taxes to be subsumed in CGST for intra state supply of goods and services State taxes to be subsumed in SGST/UTGST for intra state or union territory supplies of goods and services IGST is chargeable on inter-state supplies, imports and exports. Compensation cess is leviable on certain luxury goods. Exports are however considered as zero rated supply GST has four tier tax structure with zero rate, lower rate of 5%, two standard rates of 12 and 18% and higher rate of 28% Additional Cess: the New GST structure will collect an additional cess on the top of 28% GST. The cess will only be applied on demerit goods like coal, paan masala, tobacco, aerated drinks, and motor vehicles. Tax rates: GST has been structured in a way that essential services and food times are placed in the lower tax brackets while luxury services and products have been placed in higher tax bracket. The GST council has placed over 1300 goods and 500 services under four tax slabs. The tax on Gold is kept at 3% and rough precious and semi-precious stones are placed at a special rate of 0.25% under GST Taxes not subsumed in GST: Central Taxes : Basic Customs duty, Research and Development Cess, Export Duty, Anti Dumping duty, Safeguard duty, etc State Taxes: State Excise duty, stamp duty, professional tax,etc. GST Council The Goods and Service Tax Council is a joint forum of the Centre and states to make recommendations to Union and States relating to GST. GST council is the apex constitutional body (authority) to decide the policies of GST. The following are the important points as regards GST Council a) The Article 279A in Constitution of India makes provision for Constitution of GST Council. This Article empowers the President for the same. b) The provisions relating to GST Council came into force on 12th September, 2016. The President constituted the GST Council on 15th September, 2016. c) The function of the council is to make recommendations to the union and states on important issues like tax rates, exemptions , threshold limits, dispute resolution, etc. Members in GST Council The following are the members of GST Council a) The Union Finance Minister (Chair Person) b) The Union Minister of State in Charge of Revenue or Finance (Member) c) The Minister in charge of Finance or taxation or any other Minister nominated by each State Government (Member). The members of the GST Council referred to clause ( c ) above shall as soon may be choose one amongst themselves to be the Vice- Chairperson of the Council for such period as they may decide. A part from the above 1. Secretary (Revenue) will be appointed as the Ex-Officio Secretary to the GST Council 2. The Chairperson, Central Board of Indirect Taxes and Customs will be included as a permanent invitee(non voting) to all proceedings of the GST Council  3. One post of Additional Secretary to the GST council in the GST council secretariat will be created 4. Four posts of Commissioner in the GST Council Secretariat will also be created. Powers and Duties/Functions of the GST council 1. The GST council will be quasi-legislative-cum-administrative body because it functions both legislative as well as administrative duties as assigned by the Parliament to it. 2. The GST Council is a federal body that aims to bring together states and the centre on a common platform for the nation wide rollout of the indirect tax reform. 3. It is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of goods and services tax in India 4. The GST council dictates tax rate, tax exemption, the due date of forms, tax laws and tax deadlines, keeping in mind special rates. 5. The predominant responsibility of the GST council is to ensure to have one uniform tax rate for goods and services across the nation. 6. Recommendations of GST Council – a) The taxes , cesses and surcharges levied by the Union , the States and the local bodies which may be subsumed in the goods and service tax. b) The goods and services that may be subjected to or exempted from the goods and services tax c) Model goods and services tax laws, principles of levy, apportionment of goods and services tax levied on supplies in the course of Inter-state trade or commerce under article 269A and the principles that govern the place of supply; d) The threshold limit of turnover below which goods and services may be exempted from goods and service tax e) The rates including floor rates with bands of goods and services tax. f) Any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; g) Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland Sikkim, Tripura , Himachal Pradesh and Uttarakhand ; and h) Any other matter relating to the goods and services tax, as the Council may decide. i) Date of Levy on Petroluem products j) The GST Council shall also recommend the date on which GST be levied on petroleum, crude, High Speed Diesel motor spirit, natural gas and aviation turbine fuel. 7. Mechanism to adjudicate any dispute a) The Goods and service tax Council shall establish a mechanism to adjudicate any dispute. b) Between the Government of India and one or more States; or c) Between the Government of India and any State or states on one side and one or more other states on the other side; or d) Between two or more states, arising out of the recommendations of the councilor implementation thereof.  8) While discharging the functions conferred by the article, the GST council shall be guided by the need for a harmonized structure of goods and services tax and for the development of a harmonized national market for goods and services. 9) The GST council shall determine the procedure in the performance of its functions. 10) The GST council will oversee tax collections. GST Council proceedings are valid even if there is specified irregularity No act or proceedings of the Goods and service Tax council shall be invalid merely by reason of a) Any vacancy in, or any defect in, the constitution of the council; or b) Any defect in the appointment of a person as a member of the council; or c) Any procedural irregularity of the council not affecting the merits of the case In order to take a decision, two parameters are required namely a)Valid Meeting b) Valid Decision Valid Meeting(Quorum of meeting) In order to take a valid decision, there should be participation of substantial members in the meeting. The minimum number of members to be present in order to take official and legal actions is called as quorum. The Article 279A provides that one half of the total number of members of the GST council shall constitute a quorum for the meeting. Total number of members are 33 x 50% = 17 members. Thus the presence of 17 members constitutes a valid meeting of the council. Valid Decision As per Article 279A (9) every decision of the GST council shall be taken at a meeting by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles. The vote of the Central Government shall have a weightage of one third of the total votes cast , and The votes of all the State Governments taken together shall have a weightage of two thirds of the total votes cast, in that meeting. Goods and Services Tax Network (GSTN) The Goods and Services Tax Network is a non-government, non-profit organization. This portal will be used by the government to track every financial transaction and will provide tax payers with all services – from registration to filling taxes and maintaining all tax details. GSTN helps India fulfil its dream of paperless transactions where the compliances related to GST can be performed digitally with maximum provision of automation. It will establish a uniform interface for the tax payer and also create a common and shared IT infrastructure between the Centre and States. Salient features of the GSTN 1. Ownership : It is partly owned by Central Government (49%) and partly by private players (51%) which include Banks and Financial Institutions. The 49% holding is divided equally between the central and state governments 2. Grant: The GSTN has also been approved for a non-recurring grant of Rs.315 crores 3. Authorised Capital : The authorised capital of GSTN is Rs.10 Crore ( US$1.6 million)\ 4. Management: The team GSTN is led by Mr.Navin Kumar (IAS) as its Chairman and Mr.Prakash kumar as it CEO. 5. Technology partner: The contract for developing this vast technological backend was awarded to Infosys is September, 2015. 6. Trusted National Information Utility: The GSTN is a trusted National Information Utility (NIU) providing reliable, efficient and robust IT backbone for the smooth functioning of GST in India. It is a Capable of handling a large number of confidential data on behalf of the Indian Tax payers. So the information is kept confidential and secure. 7. Government Council: The Government has complete control over GSTN including on the composition of the Board, mechanisms of Special Resolution and shareholders Agreement, and agreements between the GSTN and other State Governments. 8. Handles Complex Transactions: The proper functioning of GSTN requires a strong IT infrastructure which can capture, process and exchange the information, considering the volume of transactions all over India, the adjustment of IGST at the government level is extremely complex. The GSTN has made possible a rapid settlement mechanism amongst the states and the centre. 9. Sharing of expenses: The user charges will be paid entirely by the Central Government and the State Governments in equal proportion (50:50) on behalf of all users. The State share will be then apportioned to individual states in proportion to the number of tax payers in the state. Objectives of GST Network  To provide common and shared IT infrastructure and services to the central and state governments, tax payers and other stakeholders for implementation of GST  To provide common PAN based registration services  To enable filling of returns and processing of payments for all states on a shared platforms  To partner with other agencies for creating an efficient and user friendly GST eco-system  To facilitate, implementation, and standardize services to the tax payer through the To help tax authorities in improving tax compliance and transparency of Tax administrative system  To carry out research, study best practices and provide training to the stakeholders or Tax authorities  To provide efficient back end services to the Tax departments of the central & state governments, based on request  To develop Tax- payer profiling utility for central and state administration  To provide analytics and business intelligence to tax authorities  To provide training to stake holder  To maintain of interface between the common GST portal and tax administrative systems  common GST portal Functions of GSTN portal The GSTN portal acts as a window for interaction between the GST tax payers of the country and the Department. This portal facilitates end to end compliances regarding GST Tax including registration, receiving invoice details and returns, facilitation of payment of taxes by the tax payer, refunds, etc. It has to support about 3 billion invoices per month and the subsequent return filing for 65 to 70 lakh tax payers. The functions of the GSTN are as follows: a. To Facilitate the registration of the persons b. To Forward the returns to central and state authorities c. To compute and settle the IGST among union and states d. To facilitate the matching of tax payment details with banking network  e. To provide various MIS reports to the Central and the State Governments based on the tax payer return information. f. Providing analysis of tax payer’s profile, and running the matching engine for matching, reversal and reclaim of input tax credit. GST Suvidha Providers The GSTN has selected certain IT, IT es and Financial technology companies to be called as GST Suvidha Providers(GSPs). The function of GSPs is to develop applications to be used by tax payers for interacting with GSTN. They facilitate the tax payers in uploading invoices as well as filing of returns and act as a single stop shop for GST related services. They customize products that address the needs of different segment of users. GSPs may take the help of application service providers who act as a link between taxpayers and GSPs. Goods and Services Tax Identification number(GSTIN) The goods and services identification number is the unique number each taxpayer will receive once they have registered on the common portal. It comprises of its PAN number and codes denoting the state it is registered in entity number in that particular state, alphabet Z and a check code of a single number. State Compensation Mechanism In GST era, there is paradigm shift from production based tax to destination /consumption based tax. Because of which there is loss of revenue to the producer state. So the major issues were : How to compute the net loss of revenue to a particular state? Who will compensate for this loss and how the funds would be arranged? Accordingly section 18 of the Constitution Ammendment Act provides that the parliament shall on the recommendation of GST council, provide for compensation to states for loss of revenue arising account of implementation of GST. The period of Compensation is restricted upto 5 years. Consequently the parliament as enacted “Goods and Service Tax (Compensation to states) Act, 2017. As per Section 7 of the GST Tax(Compensation to states) Act, 2017, states and union territories with legislatures have to be compensated for review losses arising out of implementation of GST during the five year transition period beginning from the date on which the SGST Act of the concerned state has come into force. Manner of calculation and release of compensation 1. Projected growth rate (section 3): The projected nominal growth of revenue subsumed for a state during the transition shall be 14% p.a. 2. Base year (section 4) is taken as 2015-16 3. Base year revenue:(sec.5) The base year revenue for a state shall be the sum of revenue collected by the state and the local bodies during the base year, net of refunds. The taxes included are: VAT, sales tax , purchase tax, tax collected on works contract or any other similar tax. Central sales tax Entry tax, octroi, local body tax or any other similar tax Taxes on luxuries including taxes on entertainments, amusements betting and gambling, etc. The taxes on advertisement or any other similar tax The duties of excise on medicinal and toilet preparations levied by the Union but collected and retained by the concerned State Government Any Cess or surcharge or fee leviable under various entries of list-II of the seventh schedule to the Constitution. Taxes not to be included in calculation of Base year revenue 1. Sale or purchase of petroleum products, alcoholic liquor for human consumption. 2. The entertainment tax levied by the State but collected by local bodies. Calculation and release of Compensation ( section 7) a. The Compensation payable to a state shall be provisionally calculated and released at the end of every two months period. b. IT shall be finally calculated for every financial year after the receipt of final revenue figures, as audited by the comptroller and Auditor general of India c. In case any excess compensation has been released, such amount is adjusted against compensation of subsequent financial year. The Total compensation = Projected Revenue – Actual Revenue Levy and collection of Cess (Section 8(1)) 1.It will be levied on Intra-State and Inter-State supplies of goods or services or both. 2. It will be collected in such manner as may be prescribed 3. It will levied on the recommendation of the council 4. It will be levied for a period of 5 years or for such period as may be prescribed. 5. The cess will not be levied on supplies made by taxable person who has opted for composition scheme under section 10 of the CGST Act, 2017. Rate of GST compensation Cess (Section 8(2)) The cess is levied on such supplies of goods and services as specified in the schedule on the basis of value, quantity or such basis at such rate not exceeding the rate set forth in the schedule given below. 1. Pan Masala - 135% ad valorem 2. Tobacco - Rs. 4170 per thousand sticks or 290% advalorem or a combination thereof. 3. Coal - Rs.4,000 per tonne. 4. Aerated waters – 15% advalorem 5. Motor cars - 15% advalorem 6. Any other supply – 15% advalorem Registration The registration legally recognises a person as supplier of goods and services. It also authorizes him to collect taxes from his customers and pass on the credit of such taxes paid to the purchasers of goods or recipient of services. The Registered person can claim the input tax credit of taxes paid by him and also utilize the same for payment of taxes due. Advantages:  1. Legal Recognition: The supplier gets nation-wise legal recognition as a supplier of goods and services in India. 2. Authorisation for collection of tax. 3. Benefit of Input Tax Credit 4. Seamless flow of funds: The registration allows the seamless credit of the input tax credit from the manufacturer/importer to the last supplier in the chain. It also facilities the seamless flow of funds from the centre and States from where the goods /services are supplied and tax paid to cross utilization of IGST credit and then to the consuming states of goods and services. 5. Accounting for Taxes: There are running electronic ledger maintained on the dashboard of a taxpayer by GSTN. These would be updated in real time on an activity in connection with these ledgers by the tax payer. These ledgers are Electronic Cash ledger, Electronic Credit Ledger and Electronic liability ledger. Definition of taxable person sec 2(107) Taxable person means a person who is registered or liable to be registered under section 22 or 24. A taxable person means a. Registered person is a taxable person b. Even an unregistered person who is liable to be registered is a taxable person. c. A person not liable to be registered, but has taken voluntary registration and got himself registered is also a taxable person. Section 22 to 30 of chapter VI of Central Goods and Service Tax Act stipulate the provisions relating to registration. I.Persons liable for Registration( section 22) a. Based on the threshold limit: Every supplier shall be liable to be registered under this Act in the State or Union Territory, other than special category states, from where he makes a taxable supply of goods or services or both if his aggregate turnover in a financial year exceeds twenty lakh rupees. In Special category states ( Manipur, Mizoram, Nagaland and Tripura)(CSGT Amendment Act, 2018 for section 22) the aggregate turnover in a financial year exceeds ten lakh rupees. With effect from 1-4-2019 registration is not required in the case of person who in engaged in exclusive supply of goods and who aggregate turnover in the financial year does not exceed Rs.40 lakhs. Exceptions to above rule 1. Persons required to make compulsory registration under section 24. 2. Persons engaged in making supplies of ice-cream other edible ice, whether or not containing cocoa. Pan masala, tobacco and other related products 3. Persons engaged in making intra-state supplies in the State of Arunchal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand. 4) Persons who have opted for Voluntary Registration. b) Persons registered under earlier Indirect Tax laws to migrate Every person who, on the day immediately the appointed day, is registered or holds a license under an existing law, shall be liable to be registered under this Act with effect from the appointed day c) On transfer of Business: Where a business carried on by a taxable person registered under this Act is transferred whether on account of succession or otherwise to another person as a going concern, the transferee or the successor as the case may be shall be liable to be registered with effect from the date of of such transfer or succession. d) In Case of Amalgamation or DeMerger: the transferee shall be liable to be registered, with effect from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order of the High court or tribunal. II. Persons not liable for Registration (Section 23)  a. Exemption from registration : i. Any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Act ii. Any agriculturist to the extent of supply of produce out of cultivation of land. b) Persons notified by the Government. III. Compulsory Registration (section 24) The following categories of persons shall be required to be registered under this Act 1. Persons making any inter-state taxable supply 2. Casual taxable persons making taxable supply 3. Persons who are required to pay tax under reverse charge 4. Person who are required to pay tax under sub-section ( 5) of section 9 5. Non Resident taxable person making taxable supply 6. Persons who are required to deduct tax under section 51 whether or not separately registered under this Act 7. Persons who make taxable supply of goods and services or both on behalf of other taxable persons whether as an agent or otherwise. 8. Input Service Distributor, whether or not separately registered under this Act; 9. Persons who supply goods or services or both other than supplies specified under section ( 5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52 10. Every electronic Commerce operator who is require to collect tax at source under section 52 11. Every person supplying online information and database access or retrieval services from a place outside India to a person in India , other than a registered person and 12. Such other person or class of person as may be notified by the Government on the recommendations of the council. i) If a person makes inter state taxable supply, then it is compulsory for him to get registered under GST. The only exception in this regard is inter-state supply of services , the registration is required only if his aggregate turnover computed on all India basis exceeds 20 lakhs ii) Casual taxable person is a person occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as prinicipal, agent or in any other capacity, in a state/UT where has no fixed place of business. Threshold limit of 20 lakhs is available CTP who is making inter state taxable supplies of notified handicraft goods and availing the benefit of exemption from registration.  3) Usually the supplier is liable to pay GST who transfers the incidence to recipient. But there are provisions contained under section 9(3) and 9(4) wherein the recipient is liable to pay tax. This is called as reverse charge. 4) This category covers those Electronic commerce operators who are required to pay tax in respect of intra-state supplies of specified categories of services supplied through it. The specified services include transportation of passengers, accommodation and house keeping services. 5) Non Resident taxable person occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as prinicipal, agent or in any other capacity, in a state/UT where has no fixed place of business. 6)To deduct TDS @1% from the payment made to the supplier of goods and services where the total value of such supply under a contract exceeds Rs.2,50,000. Voluntary Registration (section 25(3)) Advantage : Because by virtue of section 9(4) of the CGST Act, in case of supplies received from unregistered supplier by registered recipient, recipient has to pay the tax under reverse charge. It enables a supplier of goods or services or both to enhance it B2B transactions as the business units would prefer receiving supplied from the registered persons only. Disadvantage : The voluntary registration creates the liability to pay Tax. However they can cancel their registration at any time. Where to apply for registration: a. For three types of persons : In every such state/ UT in which he is so liable b. For the fourth type of persons: In the coastal state/UT where the nearest point of the appropriate base line is located. 1.Single Registration : Under GST Regime there is single registration for all the taxes. 2. State-wise registration: a. Business entity having its branches in multiple states: A business entity having it branches in multiple states will have to take separate State-wise registration for its branches in different states b) Different branches in a single state: A business entity having its multiple branches in the same state does not require multiple registration. Such entity would have single registration where in it can declare one place as Principal place of business and other branches as additional places of business. c) Multiple places of Business in a State: a person having multiple places of business in a state or union territory may be granted a separate registration for each such place of business, subject to such conditions as may be prescribed. 3. PAN based Registration: A person can obtain a single registration in each state or a Union Territory on a single permanent account number i.e., one registration number GSTIN per state. Procedure for Registration [section 25 read with rules 8,9, and 10 of CGST rules, 2017] 1. Delcare PAN, Mobile and email-id in Part A of FORM GST REG-01 on the common portal, either directly or through a facilitation centre notified by the commissioner 2. Validation/Verification of PAN, Mobile and email-id 3. Generation of TRN: on successful verification a Temporary Reference Number shall be generated and communicated to the applicant on the said mobile number and email-id. 4. Apply in Part B of GST REG 01 : using TRN the applicant shall electronically submit an application in Part B of Form GST REG-01, duly signed and verified through electronic verification mode, along with the documents specified in the said form at the common portal. 5. Issue of Acknowledgement: On receipt of such an application an acknowledgement shall be issued electronically to the applicant in FORM GST REG-02. 6.Verification of the application and grant of certificate: The application shall be forwarded to the proper officer who shall examine the application and the accompanying documents. If same are found in order Rule 9(1) The proper officer approve the grant of registration to the applicant with in a period of 7 working days from the date of submission of application. the registration shall be granted with in 30 days of submissions of application, after physical verification of the place of business in the presence of the said person, in the manner provided under Rule 25 and verification of such documents as the proper officer may deem fit. b. If application submitted is found to be deficient: The proper officer issues notice to the applicant electronically in FORM GST REG-03 with 7 working days from the date of submission of the application The applicant shall furnish such clarification information or documents electronically, in FORM REG-04, with in 7 working days from the date of the receipt of such notice. If proper officer is satisfied with the clarification, he will grant registration in FORM GST REG-06, with in 7 working days from the date of receipt of information/clarification/documents. If still not satisfied proper officer will reject the application for reasons to be recorded in writing. Applicability/ Non- Applicability of Rules for registration The procedure for registration prescribed under rules 8,9,10 are also applicable to: A person paying tax under composition levy Every person seeking voluntary registration A casual taxable person. However, procedure so laid down will not apply to Non-Resident taxable person A person required to deduct tax at source under section 51 A person supplying OIDAR services from a place outside India to a non-taxable online recipient referred to in section 14 of GST Act Separate registration forms and procedures have been prescribed for each of the aforesaid persons. SUO MOTU Registration by the proper Officer section 25(8) read with Rule 16 It is a temporary registration by proper officer on suomotu basis. 1. Order by Proper officer: On the basis of enquiry, inspection search or any other proceedings under the Act, officer finds that a person liable to registration under the Act has failed to apply for such registration, such officer may register the said person on a temporary basis and issue an order in FORM GST REG-12. 2. Effective date of registration: shall be effective from such order, granting registration was given. 3. Action by person: they have two alternatives: a) when order is accepted without dispute: an application is submitted for registration according to rule 8 or rule 12 within 90days from the date of grant of temporary registration.  b) When order is not accepted: then such person shall file an appeal against such temporary registration within 30 days from the date of issuance of such order of the Apellate Tribunal. 4. Verification and Certificate of Registration : rule 9 &10 will apply. 5.Effective date of registration shall be effective from the date of the order of proper officer granting temporary registration. Deemed Registration (section 26) It means if registration/unique Identification number is granted Act(CGST/SGST/ UTGST) and GSTIN is issued, it will be treated as if registration has been granted under all the GST Acts including IGST Act. Special provisions for grant of registration for CTP and NRTP(section 27 read with rules 13 &15) The following provisions are equally applicable on both. 1. No benefit of threshold limit 2. Registration before starting business: at least 5 days prior to commencement of business 3. Taxable supplies after Registration 4. Advance deposit of tax has to be made equalivalent to the estimated tax liability of such person for the period for which registration is sought. 5) Period of validity of registration certificate : maximum 90 days 6) Extension of validation can be applied for another 90 days 7) Applicability of rules 9 and 10 the provisions relating to verification of application and grant of registration  Provisions different for CTP & NRTP 1. Registration Form Number: for CTP application Form GST REG 01 where as for NRTP application form GST REG-09. 2. Requirement of PAN: The registration of CTP is a PAN based registration. But NRTP may be granted registration on the basis of other prescribed documents like self attested copy of his valid passport along with the application duly signed and verified and signed by his authorized signatory who is an Indian Resident having valid PAN Amendment of Registration (Section 28 Read with rule 19) 1. Submission of Application at GST common portal: if there is any change in the particulars furnished in registration application , then an application is submitted within 15 days of such change, along with the documents relating to such change at the GST portal. 2. Amendment or cancellation: the change in certificate due to amendment does not warrant cancellation of registration under section 29 3. Types of changes: the amendment may be related to either ‘Core Field of information or Non-Core field of information’ the core field information includes changes in A. Legal name of business B. Address of principal place of business C) Address of additional and place of business d) Addition, deletion or retirement of Partners, Karta, Managing Committee, Board of Trustees, Chief Executive officer 4. Change in NON-CORE fields: 5. Change in Core Fields: 6. Change in PAN  7. Change applicable to all: The Change of particulars shall be applicable for all registrations of a registered person obtained under provisions of this chapter on same PAN. 8. Deemed Amendment: if the proper officer fails to take any action Within 15 working days from the date of submission of the application i. Within 7 working days from the date of the receipt of the reply to the show cause notice , certificate of registration shall stand amended to the extent applied for and the amended certificate shall be made available to the registered person on the common portal. Cancellation or Suspension of Registration [section 29 read with rules 20 to 22] The cancellation under this section may be made: a. On Application filed by registered person b. On application filed by legal heirs (in case of death of registered person) c. By Proper officer on his own motion. Circumstances of cancellation prescribed in section 29(1) : the registration can be cancelled suo moto by proper officer or an application made by registered person/legal heirs i. The business has been discontinued transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or ii. There is any change in the constitution of the business iii. The taxable person who is no longer liable to be registered under section 22 or 24. Circumstances of cancellation as per section 29(2) i. When a registered person has contravened provisions of the Act or the prescribed rules. The Rules 21 of CGST Rules, 2014 prescribes that the registration is liable to be cancelled if the registered person a) Does not conduct any business from the declared place of business; or b) Issues Invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made thereunder; or c)violation the provisions of section 171 or the related rules;or d) violates the provisions of rule 10A; or e) Violations of conditions of taking ITC: f) Mismatch of GSTR-1 and GSTR-3B Violation of Rule 86B ii) Where a registered person has not furnished returns for a continuous period of six months. This period is 3 consecutive tax periods in case of a person that opted for composition levy iii) A voluntary registered person has not commenced the business with in 6 months from the date of registration iv) Where the registration has been obtained by means of fraud, wilful mis-statement or suppression of facts. 4. Cancellation does not affect liability 5. Deemed cancellation : cancellation of registration under SGST/UTGST shall be deemed to be a cancellation of registration under CGST. 6. Settlement of Electronic Ledgers: every registered person who registration is cancelled shall pay an amount by way of debit in the electronic credit ledger or electronic cash ledger. 7. Input Tax Credit on Capital Goods: In case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, which ever is higher. Meaning of period and manner of suspension or Registration 1. Where registered person has applied for cancellation of registration: the registration shall be deemed to be suspended from a. Date of submission of the application (OR) b. The date from which cancellation is sought whichever is later. 2. Where cancellation of the registration has been initiated by the Department on their own motion: They can suspend the registration of such person, pending the cancellation proceedings, without affording the said person a reasonable opportunity of being heard. The person will be informed about cancellation of registration in REG-31 electronically asking him to explain within a period of 30 days as to why his registration shall not be cancelled. 3. No taxable supply: A registered person whose registration has been suspended shall not make any taxable supply during the period of suspension and shall not be required to furnish any return under section 39. 4.No refund during suspension: 5. Deemed Revocation: the suspension of revocation shall be deemed to be revoked upon completion of the cancellation proceedings buy the proper officer. Such revocation shall be effective from the date on which the suspension had come into force. Procedure for cancellation of Registration [Rules 20 and 22] 1. Electronic Submission of Application: 2. Details to be submitted: 3. Opportunity of being heard: 4. Liable amount has to be paid. Revocation of Cancellation of Registration [ Section 30 read with rule 23] 1.Application to Proper officer Where the registration of a person is cancelled suo motu by the proper officer, such registered person may apply for revocation of the cancellation to such proper officer, in From GST REG-21, within 30 days from the date of the service of the order of cancellation of registration. 2. Default to be made good: In case registration was cancelled for failure of registered person to furnish returns before applying for revocation the person has to make good the defaults. 3. If proper officer is satisfied: he may revoke the cancellation of registration by an order in FORM GST REG-22 with in 30 days of receipt of application and communicate the same to applicant. 4. If proper officer is not satisfied: he has to issue Show Cause Notice ( in FORM GST REG -23) to applicant who shall furnish the clarification with in 7 working days. The reply is to be given in FORM GST REG-24. The proper officer shall accept/ reject the same within 30 days of receipt of such information from the applicant. 5. Revocation applicable under all GST acts. Aggregate turn over means: Valuation of Taxable supplies - XXX Exempted Supplies - XXX Exports of goods/services - XXX Inter-state supplies - XXX Supply of goods by registered Job worker after completion of Job - XXX Aggregate Turnover - XXX In above computation the following are not included CGST, SGST, UTGST, IGST & Compensation Cess