Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

No of registration

Separate registrations under State and Central laws.

No change

No of registrations required will come down substantially in view of the fact that several enactments are getting subsumed. But in some cases number may go up since registration has to be obtained in all states where branches are located.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Cross Utilisation of CENVAT and ITC

Currently, availment and cross utilisation in case of CENVAT and VAT is not permissible

Taxes paid against CGST allowed as ITC against CGST. Taxes paid against SGST allowed as ITC against SGST

Since cross utilisation is not allowed cascading effect of tax could increase but will definitely not come down.

Payment of taxes and filing of returns by seller to avail Input tax credit (ITC)

Presently under the CENVAT scheme there is no such requirement. However, some State VAT laws have such restrictions for availing ITC.

As per section 16(11), Input tax credit to the Purchaser/ Receiver of service/goods will be available only if supplier of goods/ services pays taxes and files return

The buyers will now have to ensure that their vendors have robust IT infrastructure and compliance process, so that the vendors do not default on timely and appropriate payment of taxes. This would also mean that invoice wise details are to be provided in the return or to the central database. The central database has to match the registration number of the receiver of the service/goods and show the duty payment particulars. Any failure or mistake by the supplier would lead to complications.

Reduction/ Reversal of ITC

Under most of the VAT laws, there are various reversals/reduction in credit on account of stock transfers outside the state, procurement of items ineligible for credit, etc.

ITC shall be restricted to credit in relation to business purpose. Thus, ITC for the purpose other than business shall not be permissible.

If a service provider/manufacturer has multiple business verticals, apportionments of credit taken will have to be made in respect of activities attracting exclusively CGST/SGST/non taxable goods and services or exempt goods and services will have to be made periodically. Such calculations will require verification and can lead to disputes.

Penal provisions

Only wrong utilisation is subject to penalty

Both wrong availment/utilisation are subject to penalty

When credit is availed but not utilised, levy of interest and penalty would be unfair.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Time of Supply of goods

Excise duty to be paid on the manufacture of goods and removal from factory

VAT is paid on sale of goods  within a state and CST is paid on sale of goods in interstate sale

Entry tax/Octroi is paid on entry of goods into state/local jurisdiction

Customs duty is paid on export/import of goods

CGST/SGST/IGST is  payable at earliest of

a. Removal of goods or

b. receipt of payment or

c. issuance of invoice or

d. date on which buyer shows receipt of goods

Under Reverse charge basis, earliest of

a. Date of receipt of goods

b. the date on which the payment is made, or

c. the date of receipt of invoice, or

d. the date of debit in the books of accounts

It can be observed that there are   many parameters in determining time of supply.

Thus, determining the time of supply and further maintaining reconciliation between revenue as per financials and as per GST rules could be a major challenge to meet for tax payers as well as receivers of goods and services if they want to avail input credit. This will require consideration of legal provisions in respect of every transaction. It will also increase the burden on the small tax payers since big customers may insist them to follow a particular practice while supplying goods or providing services.

Value of supply of goods/services

Excise  - Value of goods shall be value determined under section 3, 4 or 4A of Excise Act 1944 read with rules made there under

Service Tax - Value of service shall be as per section 67 of the Finance Act, 1994 read with rules made there under

VAT - VAT is payable on sale price as defined under different state Act/rules

Customs - Customs duty is payable as per section 14 of the Customs Act, 1962 read with rules made there under

CGST/SGST/IGST would be payable on the transaction value. Transaction value is the   price actually paid or payable  for the said supply of goods and/or services between un-related parties.

(The value of the supply of goods and/or services which cannot be valued as per above shall be determined in such manner as may be prescribed in the rules e.g. related party transaction)

The transaction value is also said to include all expenses in relation to sale such as reimbursable expenditure, packing, commission, subsidies, discounts allowed after supply is effected etc.

The Valuation Rules appear to be drafted by taking few provisions from current Valuation provisions in vague in Central excise (for e.g. concept of transaction value'), Service Tax (for e.g. concept of pure agent') and Customs (for e.g. concept of goods of like kind and quality'). The result is that while entering into agreements for supply of goods/services and while paying taxes, tax payers have to be careful and will have to ensure that when some goods are supplied, value has to be received from supplier and tax has to be paid on reimbursements which means that invoices have to be raised to recover reimbursable expenses and tax has to be paid. Disputes can arise about of goods supplied, actual amounts being reimbursed and taxability etc.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Place of supply of goods/services

CST -  Generally , CST is leviable at rate applicable to the sale of such goods in the State from where the interstate movement of goods has commenced

Service tax - Place of provision will be as per place of provision of service rules, 2012 - generally it is place of service recipient

Typically for goods the place of supply would be location where the good are delivered.

Whereas for services the place of supply would be location of recipient. However, there are multiple scenarios such as supply of services in relation to immovable property etc wherein this generic principle will not be applicable and specific rule will determine the place of supply.

At present inter-State supply of goods attract Central Sales Tax. Now, it provides that an inter-State supply of   goods and/ or services  will attract IGST (i.e. CGST plus SGST). Thus, it would be crucial to determine whether a transaction is an intra-State or Inter-State as taxes will be applicable accordingly.

In this regard, the model GST law provides separate provisions which will help an assessee determine the place of supply for goods and services.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Reverse Charge Mechanism

Currently RCM is applicable majorly only for receipt of certain services

Under model GST Provisions, RCM shall be applicable both for receiving goods and/ or services

Additional burden in the nature of RCM on receipt of goods as well.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Pre deposit for appeal

Present law requires pre deposit of 7.5% and 10% of duty demanded only. There is an upper limit of Rs.10 crores.

Taxpayer has to deposit 7.5%/10% of tax demanded and also the interest if determined and demanded and penalty/fine/fees to file appeal. There is no upper limit.

Filing appeals becomes costly especially if the interest amount is determined and demanded.

No of appeals

Almost every transaction would attract CGST/SGST and it is not clear whether both authorities can pass order on the same issue under both the laws. In such a case for every transaction there could be two parallel set of litigations and cost

In such a case for every transaction there could be two parallel set of litigations and cost of litigation could increase tremendously.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Demands

Time limit for demands where there is no offence is committed is one year in the case of Central Excise and 3 years in the service tax.

3 years and nine months

Indirect tax is a tax which has to be collected and paid to the government. When no offence has been committed, question arises whether it is right to have a provision proposing to demand the tax with interest for such a long period especially if the tax has not been paid because of lack of understanding and consequent non collection of tax from the receiver of the goods or services. More so when the refunds are limited to two years time and no interest is paid by the government for the period prior to filing refund claim whereas interest has to be paid from the date on which liability arises that too at a higher rate.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Returns reconciliation of details of receipts/despatches

Only returns have to be filed.

Return details have to be reconciled by the supplier as well as the recipient

This would mean that every transaction has to be verified by the supplier and the recipient and the declaration that details are true which is invariably a requirement has no value.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Supply of goods

If the job work undertaken amounts to manufacture, duty liability arises. Hence elaborate procedure and notifications have been introduced. In the case of Vat, only job work charges are being levied to tax.

Elaborate procedure under Central Excise law have been proposed.

According to Schedule I, supply to a job worker does not amount to supply of goods. If that is the case, there is no need for any procedure since transaction is not liable to tax at all. Since reverse is not true, the job worker will be liable to GST. Since job workers are paying vat at present, the same procedure can continue and since it is a supply of goods he has to pay tax on the entire value and no procedure is required and no transitional provisions are required.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Penal provisions

At present there is a differentiation between cases where short/non payment of tax due to intentional evasion and non intentional one.

Penalty for short/non payment is Rs.10, 000 or amount not exceeding 10% of amount of tax due whichever is higher.

No differentiation between deliberate evasion and non/short payment otherwise. Penalty is Rs.10, 000 or not exceeding the duty whichever is higher. Moreover the very next section namely section 68 speaks of discipline in imposition of penalty whereas minimum penalty is Rs.10,000/- and in this there is no discretion. Section also provides that it is not applicable where the penalty is a fixed sum.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Self assessment

Procedure is self assessment

Earlier self assessment involved determination of tax payable and classification only. Now an assessee has to determine to which State he has to remit the tax and a single assessee may have to remit taxes in different states.

After payment of taxes, a taxpayer may find that he should have paid tax in one state but he has paid in a different state. In the state where he has paid, time limit for filing refund may be over but in another state demand may be raised because of difference in time limit for refund and demand. He may have to pay interest and penalty also. Tax payer is not only required to pay tax but also determine to whom he should pay tax.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Refunds

Normal period for claiming refund and issuing show cause notice for demand used to be same till recently.

Now there is a substantial difference between the two. Refund claimed within two years but order confirming the demand has to be passed within 3 years and nine months. It can be assumed that scn can be issued up to two and half years. Provisions relating to unjust enrichment remain the same.

The law requires every person to show the tax amount separately in the invoice and failure to do is an offence liable to penalty. If he shows and collects, he is bound to pay it whether the transaction is liable to tax or not. However when he claims refund of tax which he had to pay either because of dispute or wrong advice or for any reason, even if he has not shown the tax separately he has to show that he has not passed on the tax. This has been a subject matter of large number of disputes but even now there is no clarity and there are different views. In view of the legal provisions relating to collection of taxes while raising invoices and also provisions requiring a person to pay the tax even if he has not collected when liable, to reduce litigation it can be clearly provided that there will be no presumption of unjust enrichment if the tax has not been shown separately in the invoice and burden to show that tax has been passed on is on the department.

Area

Current Provision under Indirect taxes

Model GST Provision

Difference/ Remarks

Absolute exemption

In Central excise, it is compulsory to avail exemption

It is compulsory to avail unconditional exemption

Exemption to any activity is not correct in respect of goods and services. When value added is not significant, exemption in fact increases the cost of goods and services. Therefore wherever exemptions are provided they should be zero rated and cash refund also should be admissible. This will simplify the process of refund of input credits lying in excess which cannot be used.