Feasibility of A Common Tax Code1
Present
Proposed
Present Rules for Services
PRESENTATION PLAN
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retained by originating State
Entry 52 of List II
Some %age of Input Tax Credit availed on goods used
in exported goods - retained by Exporting State
Forms used for accountal & verification of inter-state
movement of goods
ITC of CST / Entry Tax not allowed to buying dealer
PRESENT TAXATION OF INTER STATE SALES
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Constitutional Amendment (122nd Amendment) Bill, 2014
‘Art. 269 A . (1) Goods and services tax on supplies in the
course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be prescribed by Parliament by law.
Explanation I. – For the purposes of this clause, supply of goods or of
services or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.
Explanation II. – For the purpose of this article, “State” includes a Union territory with Legislature.
(2) Parliament may, by law, formulate the principles for determining when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”
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Centre to levy & collect Integrated GST (IGST) on supplies of goods or services in the course of inter-State trade or commerce including imports – proposed Article 269A
Centre to levy and collect non-vatable Additional Tax not exceeding 1% on inter-state supply of goods – to be assigned to the originating State (proposed Clause 17A)
IGST applicable to
Inter-state stock transfers of goods
Import of goods or services
ITC of IGST allowed to buying dealer
ITC of Additional Tax not allowed to buying dealer
Place of Supply Rules
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Place of Supply
Determining the place of supply of goods & services is important. Place of Supply Rules determines the taxing jurisdiction
In case of goods, the place of supply is generally based on
the delivery, physical location of the goods. Where goods are not removed, the place of supply could be deemed to be the place where the goods are located at the time when the supply takes place
Exceptions to this rule could be in the case of supplies on board ships, aircraft, trains, etc. or continuous supply of goods supplied through pipeline such as oil, gas, etc.
Determining the place of supply of goods may not pose much difficulties
. . . Contd.
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Place of Supply
Determining the place of supply of services is complex Supply of service is intangible; it can be continuous over a
period of time; can be spread over many places; location of service recipient and place of consumption of service is often different
Issue now more important as place of supply to be determined at State level
A supply of service in a taxable jurisdiction is generally based on following factors
- Place of residence/location of the supplier - Place of residence/location of the recipient - Place of performance of the service - Place of the location of the property in relation to Immovable property related services - Place of use or enjoyment of the service
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Rules to determine whether supplies are intra- state or inter-state
Which tax to pay – CGST / SGST or IGST
Destination based Taxation as against present origin based Taxation
Tax to be paid by taxpayer in originating State
Tax to reach destination State
ITC of IGST allowed to buying dealer in destination / importing State
PLACE OF SUPPLY RULES – SIGNIFICANCE ….
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One supplier one customer
One supplier several customers
Located in different States
Several suppliers one customer
Located in different States
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Used to determine place of provision of services
Within taxable territory
Relevant for service providers operating within India from multiple locations without a centralized regn. to determine the precise taxable jurisdiction
Consumption in SEZ
May be used as a starting reference but many caveats
Should it be Rules or part of the GST Act?
Centralized registration?
How to ensure that SGST on supply of services reaches the State that fulfils the destination and consumption principle?
Should B2B and B2C transactions be treated similarly?
PLACE OF SUPPLY – SERVICES ….
PLACE OF SUPPLY- SERVICES (contd.) General / Specific Rules
Order of application of rules different when compared to Customs Valuation Rules- specific rules (lower in the hierarchical numbering) to be applied first before applying general rule
Location of Service Provider
Location of Service Recipient
Location of Immoveable property
Rule 3 – POP generally
Location of the recipient of service (i.e. where centralized regn/where location of (i) business establishment; (ii) fixed establishment; (iii)establishment most directly concerned with provision of service; (iv) usual place of residence of service recipient
If this not available, then location of the provider of service
Rule 4 – Performance based services (e.g. cosmetic or plastic surgery, health and fitness services, classroom teaching, repair or reconditioning of goods, storage and warehousing, technical testing, dry cleaning) – POP where the services are actually performed
Where service receiver is an individual and he is required to be physically present to receive the service
Where goods have to be made physically available by the recipient to the service provider
…. PLACE OF SUPPLY – SERVICES ….
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Rule 5 – Services relating to immovable property – POP where the immovable property is located or intended to be located Rule 6 – Services relating to events – POP where the event is actually held
…. PLACE OF SUPPLY – SERVICES ….
Rule 5 – Services relating to immovable property (e.g. construction, renting, real estate agents, architects, oil exploration) – POP where the immovable property is located or intended to be located
Rule 6 – Services relating to admission to or organization of events (e.g. cultural, artistic, sporting, entertainment) – POP where the event is actually held
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…PLACE OF SUPPLY – SERVICES ….
Rule 7 – service referred to in rules 4, 5, or 6 & provided at more than one location, including a location in the taxable territory- POP is the location in the taxable territory where the greatest proportion of the service is provided
What tax treatment under consumption and destination principle where immovable property located in more than one State or where event organized or service performed in more than one State ?
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Rule 8 – Where both SP and SR located in taxable territory- POP is location of SR (e.g. Aircraft of Air India developing a technical problem in Dubai and engineers from HAL, Bangalore go to Dubai- place of provision of service is in Dubai but by application of Rule 8, place of provision of service is in India)
Rule 9 – For specified services, POP is location of SP
Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders (e.g. holders of term deposits, Non- resident external accounts, etc; but for banking services provided to non-account holders, or those not generally supplied to account holder, like portfolio management, POP will be location of receiver if available; otherwise location of supplier (Rule 3)
…. PLACE OF SUPPLY – SERVICES ….
e.g. providing trade statistics, online flight information, electronic publications
does not include sale of goods over internet, telecom services rendered over internet, repair of software through internet from a remote location
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…. PLACE OF SUPPLY – SERVICES ….
Intermediary Services- e.g. Travel Agent, Tour Operator, Commission Agent of a Service (but excludes agent for buying or selling of goods), Recovery Agent
Hiring of means of transport upto one month – e.g. motor cars, vessels, aircraft- but if hiring for more than a month, Rule 3 to apply
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Rule 10 – Goods Transportation (by modes like air, vessel, rail other than mail/courier/GTA
POP is Destination of goods (e.g. a machinery consigned from Delhi to Colombo- POP is Colombo)
GTA- POP is location of person liable to pay ST
Rule 11 – Passenger Transportation – POP is Place of embarkation of the passenger for a continuous journey (e.g. Jammu-Delhi-Jammu- non-taxable service)
Rule 12 – Services on board a conveyance (like movies or software games on demand for which money charged in addition to airfare) – POP is first scheduled point of departure of the conveyance (e.g. On a Delhi-London- New York flight, if software game demanded in London- New York leg, still chargeable to service tax)
…. PLACE OF SUPPLY – SERVICES….
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Rule 13 – Central Government has power to notify any description of service or circumstances to prevent double taxation or non-taxation of provision of a service
Guiding principle – POP is place of effective use and enjoyment of a service
Rule 14 – Order of application of rules – later Rule where more than one rule merit equal consideration
…. PLACE OF SUPPLY – SERVICES
Principles for good Supply Rules
Destination is where effective use and enjoyment – OECD Draft Paper – February , 2013
Revenue neutrality should be achieved to the extent possible
Tax administration should not lay claim to B2B transaction , being a wash transaction, unless intended otherwise
Decision as to how to conduct business should not be influenced by tax policy unless specifically intended.
GST chain should integrate with the supply chain. Input Stage Tax should move along with supply chain and ultimate incidence of tax should be at the final consumption point
GUIDING PRINCIPLES….
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Rules should be implementable without any undue compliance burden to the taxpayer or administrative complexities to tax administration
Rules should be such that they would not lead to increase in cascading burden and not deviate from the objective of creating a common market under GST regime
Rules for B2B supplies should normally be the location of recipient of goods or services and not where goods / services is actually delivered / performed
….GUIDING PRINCIPLES
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Certain services-
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