Comparative Analysis under GST regime

JUNE 24, 2016

By Jigar Doshi, Khushbu Trivedi and Shreyas Mirji, SKP

THE
'Goods and Services Tax' (GST),which is probably the most important tax reform in India till date, seems to have finally picked up momentum
once again, with the Government releasing the model GST law in the public domain on 14th June 2016 with the purpose of inviting
suggestions from all the stakeholders.

The model GST law, in its current version, seeks to bring about various changes which will affect not only the tax structure but also the current
business structure in the Indian economy.

Hence, it is important to analyse the changes and understand how they will impact the transaction flow as compared to the current indirect tax
laws prevailing in India.

Brief analysis in this regard has been tabulated below with respect to certain crucial aspects under current indirect tax regime and GST regime
as per the model GST Law:

1. Input Tax Credit (ITC)

Area Current Provision under Indirect Model GST Provision Difference/ Remarks
taxes

Cross Utilisation Currently, availment and cross Taxes paid against CGST Cross utilisation shall be allowed
of CENVAT and utilisation in case of CENVAT and allowed as ITC against except cross utilization of ITC
ITC VAT is not permissible CGST. Taxes paid against between the Central GST and State
SGST allowed as ITC against GST would not be allowed
SGST

Eligibility of CENVAT on services inward Input tax credit is available on Manufacturers will benefit from this
CENVAT/ ITC transportation of goods (and transportation of goods change at large
outward transportation upto the
place of removal) is allowed

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 Restriction on CENVAT Credit for capital good is Full Input tax credit in the first This would lead to positive impact
ITC of Capital available in two instalment i.e. 50% year itself on cash flows
goods in the first year and 50% in the
subsequent year

Payment of taxes Presently under the CENVAT As per section 16(11), Input The buyers will now have to
and filing of scheme there is no such tax credit to the Purchaser/ ensure that their vendors have
returns by seller requirement. However, some State Receiver of service/goods will robust IT infrastructure and
to avail Input tax VAT lawshave such restrictions for be available only if supplier of compliance process, so that the
credit (ITC) availing ITC. goods/ services pays taxes vendors do not default on timely
and files their return and appropriate payment of taxes.

Reduction/ Under most of the VAT laws, there ITC shall be restricted to Reversal's of ITC willbe minimized
Reversal of ITC are various reversals/reduction in credit in relation to business considerably as all outward supply
credit on account of stock transfers purpose. Thus, ITC for the of goods and/or services would be
outside the state, procurement of purpose other than business levied under one GST framework
items ineligible for credit, etc. shall not be permissible only. Thus, reversal of ITC will
only be limited for exempted /
Further, currently no restriction on Non - GST supplies.
purpose of use subject to certain
conditions

2. Refund

Area Current Provision under Indirect Model GST Provision Difference/ Remarks
taxes

Increase in time Application for refund to be filed Application for refund to be Increase in time limit for application
limit for application within one year from the relevant filed within two year from the of refund to 2 years
date relevant date is a welcome move and the same
will ease the procedural aspects
involved in filing the refund

Documents Various documentary evidences If the refund claim is less than This move will serve as a huge relief
requirement if such as output and input invoices, Rs. 5 lakhs , then it shall not for small assessees which will
refund claim is less FIRCs, bank statements, various be necessary for the claimant prevent the cost, time and effort
than Rs. 5 lakhs declarations etc. are required to be to furnish documentary spent in maintaining huge
submitted irrespective of the claim evidences. documentation
amount
Instead, he may file a
declaration based on the
documentary evidence
available

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 Time Limit for No such It has been specifically stated that the Since the time limit has been specifically stated, it
sanction of provision officials will be required to issue refund will ensure speedy disbursement of refund claims
refund order within 90 days by the authorities and reduce the hassles faced in
from the date of receipt of application. the current regime

The term 'application' shall mean complete

application containing all information as
may be prescribed.

3. Time and value of goods/ services

Area Current Provision under Model GST Provision Difference/ Remarks

Indirect taxes

Time of Supply
of goods Excise duty to be paid on the CGST/SGST/IGST is payable at It can be observed that there are
manufacture of goods and earliest of many parameters
removal from factory in determining time of supply.
a. Removal of goods or
VAT is paid on sale of goods Thus, determining the time of
within a state and CST is paid on b. receipt of payment or supply and further maintaining
sale of goods in interstate sale reconciliation between revenue
c. issuance of invoice or as per financials and as per GST
Entry tax/Octroi is paid on entry rules could be a major challenge
of goods into state/local d. date on which buyer shows to meet.
jurisdiction receipt of goods

Customs duty is paid on Under Reverse charge basis,

export/import of goods 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

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 Time of Supply
of Services Service Tax is payable at earliest CGST/SGST/IGST is payable at
of earliest of

1. date of invoice a. Issuance of invoice or

or
b. receipt of payment or
2. receipt of
payment c. date on which recipient shows
receipt of services

(subject to invoice is raised within Under Revere charge basis,

30 days from completion of earliest of
service)
a. Date of receipt of services
Under Revere charge basis
b. the date on which the payment
the date on which the payment is is made, or
made subject to other rules
specified c. the date of receipt of invoice, or

d. the date of debit in the books of

accounts

Value of supply The Valuation Rules appear to

of goods/services Excise - Value of goods shall be CGST/SGST/IGST would be be drafted by taking few
value determined under section payable on the transaction value. provisions from current
3, 4 or 4A of Excise Act 1944 Transaction value is the Valuation provisions in vague in
read with rules made thereunder price actually paid or payable Excise (for e.g. concept of
for the said supply of goods transaction value'), Service Tax
Service Tax - Value of service and/or services between un- (for e.g. concept of pure agent')
shall be as per section 67 of the related parties. and Customs (for e.g. concept
Finance Act, 1994 read with rules of goods of like kind and
made thereunder (The value of the supply of goods quality').
and/or services which cannot be
VAT - VAT is payable on sale valued as per above shall be
price as defined under different determined in such manner as
state Act/rules may be prescribed in the rules
e.g. related party transaction)
Customs - Customs duty is
payable as per section 14 of the The transaction value is also said
Customs Act, 1962 read with to include all expenses in relation
rules made thereunder to sale such as reimbursable
expenditure, packing,
commission, subsidies, discounts
allowed after supply is effected
etc.

4. Place of supply of goods/services

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 Area Current Provision Model GST Provision Difference/ Remarks
under Indirect taxes

Place of supply CST - Generally , CST is Typically for goods the place of At present inter-State supply of goods
of goods/services leviable at rate applicable supply would be location where the attract Central Sales Tax. Now, it
to the sale of such goods good are delivered . provides that an inter-State supply of
in the State from where goods and/ or services
the interstate movement Whereas for services the place of will attract IGST (i.e. CGST plus
of goods has supply would be SGST). Thus, it would be crucial to
commenced location of recipient determine whether a transaction is an
. However, there are multiple intra-Stateor Inter-State as taxes will
Service tax - Place of scenarios such as supply of be applicable accordingly.
provision will be as per services in relation to immovable
place of provision of property etc wherein this generic In this regard, the model GST law
service rules, 2012 - principle will not be applicable and provides separate provisions which will
generally it is place of specific rule will determine the help an assessee determine the place
service recipient place of supply. of supply for goods and services

5. Reverse Charge Mechanism

Area Current Provision under Model GST Provision Difference/ Remarks

Indirect taxes

Reverse Charge Currently RCM is applicable Under model GST Provisions, RCM Additional burden in the
Mechanism majorly only for receipt of shall be applicable both for receiving nature of RCM on receipt of
certain services goods and/ or services goods as well

Going through the above changes, there are certain welcome moves by the Government such as cross utilisation of inter state tax credit,
availability of full credit on capital goods and minimising the requirements for small assessees for filing of refunds etc.

However, in spite of the positives, one cannot ignore the fact that the new regime will also pose many challenges in the form of increased
compliance burden on the assessee and increasing variousinterpretational issues which can lead to a number of litigations.

Nevertheless, this timely release of model GST law in the public domain almost 10 months ahead of the probable implementation dateaugurs
well for the stakeholders as they can gear up for GST in a more effective and efficient manner.

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