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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