Model GST Act 2016

Key Highlights of the Model Draft GST Act are as below:

1.  Registration:

Threshold of Turnover crossing which businesses will be liable to get registered is Rs 4 Lakhs for NE states and Sikkim and Rs 9 Lakhs for Rest of India. However, liability to pay tax will be only after crossing 5 Lakh and 10 Lakh turnover respectively for NE states / Sikkim and Rest of India.

Implication: Around 85-90 Lakh unique businesses likely under GST

2.  Rules determining ‘Time of Supply of Goods’

The liability to pay CGST/SGST on goods arises based on whichever of the following is earlier:

a.     Date of removal of goods by supplier (if goods require to be removed to effect supply)

b.     Date on which goods made available to recipient (if goods not required to be removed)

c.      Date of issue of invoice by supplier

d.     Date of receipt of payment by supplier

e.     Date on which recipient accounts for goods receipt in his books

3.  Rules determining ‘Time of Supply of Services’

The time of supply of service shall be:

When invoice is issued within prescribed period, whichever of the following is earlier:

·        Date of issue of invoice

·        Date of receipt of payment

When invoice is not issued within prescribed period, whichever of the following is earlier:

·        Date of completion of provision of service

·        Date of receipt of payment

4.  Value of Taxable Supply

Value of supply for good / service is the ‘transaction value’ which is the price actually paid by recipient.

1.     The transaction value shall include:

a.     Any amount paid by supplier but is actually incurred by recipient (Ex: Transport, Freight / Insurance) and is not part of the price

b.     Appropriate cost of goods or service provided by recipient (for free or at reduced cost) as part of the supply but not included in the price

c.      Royalties and License fees associated with supply which the recipient is supposed to pay but not included in price

d.     Other taxes/duties/levies (apart from GST Act)

e.     Commission and packing charges

f.       Subsidies if any

g.     Reimbursable expenses charged by supplier

h.     Post supply discounts

2.     Trade discounts given at the time of supply and clearly linked to an invoice will not form part of transaction value.

5.  Input Tax Credit

All eligible ITC will be added to the electronic credit ledger of taxpayer.

Salient features:

·        On the day of transition to GST, ITC on all inputs held as stock in semi-finished or finished status on the preceding day will be available as credit.

·        All ITC input should be claimed within 1 year from date of invoice.

·        If the input goods / services are used for supplying non-taxable or exempted supplies (either partially or fully) then the ITC has to be reversed pro-rata.

·        In case of sale of business or merger etc. the accumulated ITC may be transferred to new entity. 

ITC Distribution by ISD

Summary:

Scenario 1: Distributor (ISD) and Recipient are located in different states
Credit Available	Distributed as
CGST	IGST
IGST	IGST
SGST	IGST
Scenario 2: Distributor (ISD) and Recipient (Business vertical) are located in the same state
Credit Available	Distributed as
CGST	CGST
IGST	CGST or SGST
SGST	SGST

6.  Tax Invoice, Debit/Credit Note

Highlights:

·        All taxable supply must be accompanied by tax invoice having details of description, quantity, value of goods and tax charged.

·        Composition dealer to issue bill of supply, in case of non-taxable supply also a Bill of supply is to be issued.

·        Subsequent to issue of tax invoice if there is decrease in value of supply or tax then, supplier will issue a credit note to recipient. The credit note may be issued till 30^th of Sep of next FY or before last day of filing annual return whichever is earlier.

·        Subsequent to issue of tax invoice if there is increase in value of supply or tax then, supplier will issue a debit note to recipient. The debit note may be issued till 30^th of Sep of next FY or before last day of filing annual return whichever is earlier.

7.  Returns

Key Features:

·        Every registered regular dealer to furnish outward supply details by 10^th of subsequent month including zero-rated, inter-state supplies, goods return/credit note, exports, supplementary invoices etc. These would be communicated (auto drafted) to the recipient.

·        Any rectification to reported outward supply that is unmatched is allowed till 30^th of Sep occurring after the end of FY or before filing of annual return whichever is earlier.

·        Recipient may accept, reject, modify or delete his inward supply as communicated (auto drafted) by supplier. He may also add missing inward supplies.

·        All inward supply attracting tax on reverse charge basis, inward supplies under IGST Act and credit or debit note details will have to be updated before 15^th of subsequent month.

·        Changes to unmatched inward supply can be done till 30^th of Sep of subsequent year or before filing of Annual return whichever is earlier.

·        The auto drafted return for the tax period to be submitted before 20^th of subsequent month. In case of non-filing of any of the previous returns or invalid returns (part payment) then he will not be allowed to file subsequent return.

·        Business deducting tax at source (TDS) will have to file the said return by 10^th of subsequent month.

·        ISD return to be filed by 13^th of subsequent month and quarterly composition return by 18^th of the subsequent month.

·        For new registrations, the First return will be for the period from effective date of registration to end of month or end of quarter as applicable.

·        Annual return to be filed before 31^st Dec (Not applicable to ISD, casual dealer, or TDS Deductor). For businesses required to undergo Tax Audit, they would have to file annual return along with reconciliation statement in comparison with audited financial results.

·        Final Return to be filed within 3 months from date of cancellation of registration.

·        Late fee for return filing will be Rs 100 per day and a maximum of Rs 5,000

·        Returns may also be filed by an authorized Tax Return Preparer but the accountability will rest with the Taxpayer only.

8.  Payment of Tax

·        Payment can be made through online (NEFT/RTGS, Credit / Debit cards) or offline mode and date of credit to respective government account would be the date of deposit. Payment will get added to the electronic cash ledger.

9.  Refunds

·        Refund claims to be made within 2 years. Refund of unutilized ITC would be available only in case of Exports and Inverted Duty structure. ITC refund may be claimed after end of any tax period.

·        Refund to be provided within 90 days from application date. In case of exports 80% of refund claimed may be given provisionally and rest 20% after verification of documents.

10.      Job work

Principal may send goods to job worker with or without payment of tax under special procedure of removal approved by Commissioner. Principal may bring back goods from job worker within 180 days and supply further. If principal has declared job worker as an additional place of business then such supply may be done directly without bringing goods back to Principal. In such case, job worker also needs to be registered.

11.      E-Commerce

Terminologies defined:

Aggregator: Any business providing an electronic platform that connects buyers with sellers.

Electronic commerce: Supply and receipt of goods/services using electronic network irrespective of payment being done online and irrespective of delivery of goods/service is being done by operator.

Electronic Commerce Operator: Any Business operating the electronic platform that enables supply and receipt of goods/service but does not include persons engaged in the supply of such goods/services.

TDS or Tax Deducted at Source:

E-commerce operator at the time of crediting the account of supplier has to deduct tax at source at a rate to be notified by GST council. The operator will pay to government the TDS collected before 10^th of next month. The operator will also file Outward supply return by 10^th indicating all supplies of goods/services done during the month and also details of TDS deducted.

The outward supply details provided by operator will be compared with outward supply details declared by supplier. Any mismatch will be communicated to both parties. Lf the discrepancy continues, after 1 month the output liability of supplier will be increased accordingly along with interest.

12.      GST Compliance Rating

Every Taxpayer would be assessed based on past performance and assigned a GST compliance rating which will be publicly available for reference. The parameters for rating and related modalities are yet to be defined.

13.      GST Transition Provisions

The Act provides for various rules defining carry forward of Input Tax Credit from present indirect tax regime to GST. ITC available in returns, unavailed ITC on capital goods, a business moving from composition to regular or vice-versa under GST, pending refunds and similar such scenarios are handled.

14.      Goods Vs Services

Goods:

·        Any transfer of good with transfer of title

·        Transfer or disposal of business assets with or without consideration

·        If goods of a business are sold by bank to recover debt, it is supply of goods by the taxpayer

Service:

·        Transfer of Good without transfer of title

·        Lease / tenancy / license to occupy land

·        Works contract, intangibles, restaurants

·        Treatment process (job work)

·        Supply of goods for private non-business use, with or without consideration

15.      GST Valuation Rules

Guidelines:

·        The value of goods/service is the ‘transaction value’ determined in monetary terms.

·        The value of transaction is attributable to taxable supply in case of supplies having both taxable and non-taxable parts.

·        In case of supplier and recipient being related, the transaction value will still be considered as value of supply unless the price has been influenced.

·        Transaction value will also be considered for branch transfers and for transfer from Principal to Agent or vice-versa.

In case of inability to determine transaction value or in case of ambiguity the value is determined by comparison.

Value of Supply by Comparison

·        Value shall be estimated based on transaction value of goods/services of like kind and quality, supplied to other customers around the same time.

·        While estimating such value, following considerations to be made:

o   Difference in dates of supply

o   Difference in commercial level and quantity

o   Difference in Quality/design/composition

o   Difference in freight and insurance charges

Value of Supply by Computation

If value of transaction cannot be determined by comparison, it will be computed based on the following:

o   Cost of manufacturing the good or cost of providing the service

o   Additional charges if any for design/brand

o   Profit margin and other expenses that exist for other goods of similar kind supplied by other suppliers

Residual Method: When none of the above methods are applicable then value may be determined as per generally accepted accounting principles.