This article on GST is written by Milind Talegaonkar, pursuing M.A. in business law from NUJS, Kolkata.
The indirect tax system in India is extremely complex. It has long been felt that the complexity of tax structure and the general legal framework dampens entrepreneurship and hinders growth of businesses. India, in spite of being a single country, faces internal barriers to interstate trade, commerce, and business because of prevailing multiplicity of tax structures. While the implementation of VAT helped in ironing out major tax rate differences yet the need for structural reforms continued to be felt. VAT implementation also helped in preparing the groundwork that is essential for bringing out the next level of tax reforms viz. the Goods and Services Tax (“GST”).
Essential features of GST:
- It is a destination-based tax on consumption of goods and services. It means that the tax would accrue to the taxing authority which has jurisdiction over the place of consumption (often called ‘place of supply’).
- It is levied at all stages till consumption. It means that GST would be levied at all trading, manufacturing, storage, distribution, wholesale/retail stages upto the final consumption but credit of taxes paid at previous stages would be available as setoff. Thus, the concept of taxing merely the value additions is retained in GST and there would be no cascading effect of taxes. The final burden of tax will have to be borne by the final consumer.
Existing levies proposed to be replaced or subsumed by the GST
As of now the following taxes are proposed to be replaced by GST:
It may be observed that the levies identified for subsuming in the GST confirm to the following broad principles:
- The identified levies should be primarily in the nature of indirect taxes on goods or services;
- The levies should be part of the transaction chain that commences with import or manufacture or production of goods or provision of services at one end and the consumption of goods and services at the other. The underlying intent being that the proposed subsuming should result in free flow of tax credit in intra and inter-state levels;
- Revenue fairness to the Union and the States.
It is pertinent to mention here that the following important commodities/services have been kept outside the purview of GST and the existing VAT and Central excise would continue to apply on the following commodities:
- Alcohol for human consumption,
- Petroleum Products namely, petroleum crude, motor spirit (petrol), high-speed diesel, natural gas and aviation turbine fuel;
It is interesting to note that Tobacco and Tobacco products would be subject to GST and the Union Government would additionally have the power to levy Central Excise duty on these products.
Brief overview of the GST Model and administration modalities
The GST to be rolled out will be a dual GST in which the Centre and States will simultaneously levy on a common tax base. The Centre would levy GST on the intra-state supply of goods and/or services and it would be named Central GST (“CGST”). The Centre would also levy and administer an integrated GST (“IGST”) on every interstate supply of goods and services. Such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. The GST to be levied by the States would be called State GST (“SGST”). One may wonder about the necessity of a dual GST and the answer lies in the fact that India is a federal state and both Central and State Governments need to respectively exercise powers and discharge their respective responsibilities enshrined in the constitution as per division of powers. Since raising of resources through appropriate legislation is a sine-a-que-non for this, the dual GST would naturally be in consonance with the constitution requirement of fiscal federalism. Introduction of the GST necessitated amendments to the Constitution so as to simultaneously empower the Centre and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution (one hundred and first amendment) Act, 2016 recently for this purpose. Article 246A of the Constitution now empowers the Centre and the States to levy and collect the GST. The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The GST Council would recommend the rates to be notified. Every person who is liable to take a Registration will have to get registered separately for each of the States where he has a business operation and is liable to pay GST in terms of Sub-section (1) of Section 19 of Model GST Law (“MGL” or “Act”) .
Expected benefits from GST
Introduction of GST would amalgamate a large number of Central and State taxes into a single tax and allow set-off of prior-stage taxes. This would mitigate the ill effects of tax cascading and pave the way for a common national market. The consumers too are expected to gain through a reduction in the overall tax burden on goods, which is currently estimated to be between 25% and 30%. Moreover, GST would also make Indian products competitive in the international markets. It is also expected that both the Centre and the States would gain in terms of overall revenue due to widening of the tax base, increase in trade volumes, ease of administration and improved tax compliance. Lastly, the improved transparency is expected to attract entrepreneurial activities and foreign investment leading to greater employment and the resulting economic growth.
Examination of GST as a tax liability
A turnover threshold aggregating to Rs.10 lakhs (Rs. 5 lakhs for NE-States) has been fixed after crossing which the taxable person would be liable to pay GST. The lower limit of Rs.5 lakhs appears counterintuitive, but the underlying reason thereof is based on the apprehension that since the tax base as well as the total revenue of these states is lower than the rest of India the high aggregate turnover exemption limits are likely to keep majority of the businesses based in North-eastern states out of the purview of GST and would yield low tax collections which would be detrimental to the long-term fiscal health of these states. There are certain exceptions where the taxable person is liable to pay GST even though he has not crossed the threshold limit. The CGST /SGST and IGST are payable at the rates specified in the Schedules to the respective Acts. Aggregate turnover shall include the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services and exclude taxes viz. GST. Aggregate turnover shall be computed on all India basis. The concept is discussed in more detail at the applicable heading. For NE States and Sikkim, the exemption threshold shall be Rs. 5 lakhs. All taxpayers eligible for threshold exemption will have the option of paying tax with input tax credit (“ITC”) benefits. Tax payers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption.
System of Classification of goods and services
Good would be classified using Harmonised System of Nomenclature code (HSN). Services will be classified as per the Services Accounting Code (SAC).
Treatment of Imports and exports
The imported Goods and Services will be deemed or treated as inter-state supplies and IGST will be levied at the time of imports into the country. The tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed (following the destination principle). Full and complete set-off will be available on the GST paid on import on goods and services.
Exports will be treated as zero rated supplies and no tax will be payable on exports of goods or services, however credit of input tax credit will be available and same will be available as refund to the exporters.
Composition scheme for small taxpayers
Small taxpayers with an aggregate turnover in a financial year up to Rs. 50 lakhs shall be eligible for composition levy. Under this optional scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of Input Tax Credit. The floor rate of such tax for CGST and SGST shall not be less than 1%. A tax payer opting for composition levy shall not collect any tax from his customers. Tax payers making inter-state supplies or paying tax on reverse charge basis shall not be eligible for composition scheme.
A Special Purpose Vehicle called the Goods and Service Tax Network (GSTN) has been set up to cater to the implementation needs of GST. The GSTN shall provide a shared IT infrastructure and services to the Central and State Governments, the tax payers and other stakeholders for implementation of GST. The functions of the GSTN would, inter alia, include:
- Registration facilitation;
- Forwarding the submitted returns to Central and State authorities;
- Computation and settlement of IGST;
- Matching of tax payment details with banking network;
- Providing various MIS reports to the Central and the State Governments based on the tax payer return information;
- Providing analysis of tax payers’ profile; and
- Running the matching engine for matching, reversal and reclaim of input tax credit.
Purchase of goods from unregistered dealers
In case the received goods have been purchased from an unregistered dealer, the receiver of goods will not be able to get Input Tax Credit. Moreover, if the recipient is registered under composition schemes he would also be liable to pay tax under reverse charge.
Computation of aggregate turnover
According to Section 2(6) of the GST Act, ‘aggregate turnover’ means ‘Value of all supplies (taxable and non-taxable supplies + Exempt supplies + Exports) and it excludes Taxes levied under CGST Act, SGST Act and IGST Act, Value of inward supplies + Value of supplies taxable under reverse charge of a person having the same PAN.
Advantages of GST registration to the dealers
A GST registration confers the following advantages to the dealers/business:
- Legally recognition as supplier of goods/ services.
- Proper accounting of taxes paid on the input goods or services which can be utilized for payment of GST due on supply of goods or services or both by the business.
- Legal authority to collect tax from his purchasers and pass on the credit of the taxes paid on the goods or services supplied to purchasers or recipients.
Compulsory registration requirement in some cases
The following categories of persons shall be required to be registered compulsorily irrespective of the threshold limit as per paragraph 5 in Schedule III of Model GST Law:
- Persons making any inter-State taxable supply;
- Casual taxable persons;
- Persons who are required to pay tax under reverse charge;
- Non-resident taxable persons;
- Persons who are required to deduct tax under section 37;
- Persons who supply goods and/or services on behalf of other registered taxable persons whether as an agent or otherwise;
- Input service distributor;
- Persons who supply goods and/or services, other than branded services, through electronic commerce operator;
- Every electronic commerce operator;
- An aggregator who supplies services under his brand name or his trade name; and
- Such other person or class of persons as may be notified by the Central Government or a State Government on the recommendations of the Council.
Input Service Distributor (ISD)
It is basically an office meant to receive tax invoices towards receipt of input services and further distribute the credit to supplier units proportionately. The ISD registration is for one office of the taxpayer which will be different from the normal registration. Different offices of a taxpayer can apply for separate ISD registration.
Facilities for smaller dealers or dealers having no IT infrastructure
The following facilities shall be made available to such dealers:-
- Tax Return Preparer (TRP): A taxable person may prepare his registration application /returns himself or can approach the TRP for assistance. TRP will prepare the said registration document / return in prescribed format on the basis of the information furnished to him by the taxable person. The legal responsibility of the correctness of information contained in the forms prepared by the TRP will rest with the taxable person only and the TRP shall not be liable for any errors or incorrect information.
- Facilitation Centre (FC): shall be responsible for the digitization and / or uploading of the forms and documents including summary sheet duly signed by the Authorized Signatory and given to it by the taxable person. After uploading the data on common portal using the ID and Password of FC, a print-out of acknowledgement will be taken and signed by the FC and handed over to the taxable person for his records. The FC will scan and upload the summary sheet duly signed by the Authorized Signatory.
Essential Concepts under GST
Taxable event under GST
The taxable event under GST shall be the supply of goods and / or services made for consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’. The term ‘supply’ is wide in its import and includes all forms of supply of goods and / or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of service. The MGL also provides for including certain transactions made without consideration within the scope of supply.
A ‘taxable supply’ means a supply of goods and /or services which is chargeable to good and services tax under the GST Act.
Necessary elements for constituting supply under Model GST Law
In order to constitute a ‘supply’, the following necessary elements are required:
- Supply of goods and / or services;
- Supply is for a consideration;
- Supply is made in the course or furtherance of business;
- Supply is made in the taxable territory;
- Supply is a taxable supply; and
- Supply is made by a taxable person.
Under certain circumstances such as importation of service (Section 3(1) (b) of Act) or supplies made without consideration, specified under Schedule-I of MGL, where one or more ingredients specified above does not exist, the transaction shall still be treated as supply under GST Law. Moreover, self-supplies such as stock transfers occasioning Inter-state movement of goods will be taxable and the taxable person has to take state wise registration in terms of Schedule 1(5). Such transactions have been made taxable even if there is no consideration. However, intra-state self-supplies are not taxable.
Point of time when the liability to charge GST arises in respect of supply of goods
The time of supply of goods shall be the earliest of the following namely:
- the date on which the goods are removed by the supplier, where the supply of goods require removal; or
- the date on which the goods are made available where the supply does not require removal; or
- the date on which the supplier issues invoices with respect to the supply where the above two situations do not apply; or
- the date on which the recipient shows the receipt of the goods in his books of accounts.
Point of time when the liability to charge GST arises in respect of supply of services
In the case of services, the time of supply is determined by the fact whether the invoice for supply of services has been issued within the prescribed period or beyond such prescribed period. The time of supply of service in cases where invoice has not been issued within the prescribed time shall be the earliest of the following:
- date of completion of the provision of service; or
- the date of receipt of payment.
The time of supply of service in cases where the invoice has been issued within the prescribed time shall be the earliest of the following:
- date of issue of invoice; or
- the date of receipt of payment.
Valuation in GST
The value of taxable supply of goods and services shall ordinarily be ‘the transaction value’ which is the actually the price paid or payable, when the parties are not related and price is the sole consideration. The MGL further elaborates various inclusions and exclusions from the ambit of transaction value. For example, the transaction value shall not include refundable deposit, discount allowed before or at the time of supply. The valuation provisions apply uniformly irrespective of which tax (es) out of CGST, SGST and IGST is attracted. When the price is influenced by some factors like relationship of parties or when certain transactions are deemed to be supply, which do not have a price, it is required to overcome such factors to determine the transaction value correctly by a reference to Valuation Rules. The transaction value can be doubted in the following indicative and non-exhaustive cases:
- comparable supplies are at significantly higher value;
- transaction is at significantly lower or higher than market value of supplies; and
- mis-declaration in parameters like description, quantity, quality, year of make etc.
Taxable Person liable to pay GST
While, in general the supplier of goods or service is liable to pay GST but in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. Further, in some cases, the liability to pay is on the third person. For instance,
Government and Government undertakings and other notified entities making contractual payments in excess of Rs.10 Lakhs to suppliers are required to deduct 1% of the total payable amount and remit it into the appropriate GST account. As another example, the E-Commerce Operators (like Amazon, Flip-cart etc.) needs to withhold a percentage (to be notified later on the recommendation of the GST Council) of the amount which is due from them to their supplier at the time of making actual payment to the supplier. Such withheld amount is to be deposited by such E-Commerce Operator to the appropriate GST account by the 10th of the next month. The amount deposited as TCS will be reflected in the electronic cash ledger of the supplier.
Manner of GST payment
GST payments can be done by the following methods:
- Through debit of Credit Ledger of the taxpayer maintained on the Common Portal. It has to be noted that only tax can be paid and no interest, penalty and fees can be paid by debit in the credit ledger. Tax payers shall be allowed to take credit of taxes paid on inputs (input tax credit) and utilize the same for payment of output tax. However, no input tax credit on account of CGST shall be utilized towards payment of SGST and vice versa. The credit of IGST would be permitted to be utilized for payment of IGST, CGST and SGST in that order.
- In cash by debit in the Cash Ledger of the taxpayer maintained on the Common Portal. Money can be deposited in the Cash Ledger by different modes, namely, E-Payment (Internet Banking, Credit Card, Debit Card); Real Time Gross Settlement (RTGS)/ National Electronic Fund Transfer (NEFT); Over the Counter Payment in branches of Banks Authorized to accept deposit of GST. The payment of taxes by the normal taxpayer is to be done on monthly basis by the 20th of the succeeding month. Cash payments will be first deposited in the Cash Ledger and the taxpayer shall debit the ledger while making payment in the monthly returns and shall reflect the relevant debit entry number in his return. As mentioned earlier, payment can also be debited from the Credit Ledger. Payment of taxes for the month of March shall be paid by the 20th of April. Composition tax payers will need to pay tax on quarterly basis. Timing of payment will be from 0000 Hrs to 2000 Hrs. In cases involving Tax collected at source, the tax which is deposited by the operator into government account will be reflected in the cash ledger of the actual registered supplier (on whose account such collection has been made) on the basis of the statement filed by the operator. The same can be used at the time of discharge of tax liability in respect of the supplies by the actual supplier.
Job-work means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression “job-worker” shall be construed accordingly. It can be noted that the activity of Job work need not amount to manufacture.
Dispatch of goods by a taxable person to a job-worker
Such dispatches will not amount to supplies in terms of GST. No GST shall be applicable on the goods supplied by the registered principal to a job-worker. A Job-worker would be regarded a supplier of services and he would be required to obtain registration if his aggregate turnover exceeds the prescribed threshold. The goods of principal directly supplied from the job-worker’s premises will be included in the aggregate turnover of the principal. The principal can supply the goods directly from the premises of the job-worker without bringing it back to his own premises subject to the condition that the principal should have declared the premises of such job-worker as his additional place of business or alternatively the job-worker needs to be a registered person or the goods must be notified goods. The credit of taxes paid on inputs or capital goods can be taken in the following manner:
- Principal shall be entitled to take credit of inputs sent to a job-worker if the said inputs, after completion of job-work are received back in 180 days from the date of being sent out.
- In case the inputs are sent directly to the job-worker, the date shall be counted from the date of receipt of inputs by job-worker.
- Further an amount equivalent to the input tax credit availed on such inputs has to be paid along with interest, in case the inputs are not received back within the specified time. The credit can be reclaimed when the inputs are actually received back.
Negative list on which Input Tax Credit is not permitted
The Input tax credit cannot be availed on:
- motor vehicles, except when they are supplied in the usual course of business or are used for providing the specified taxable services, namely (i) transportation of passengers, or (ii) transportation of goods, or (iii) imparting training on motor driving skills;
- goods and / or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness center, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/ or services are used primarily for personal use or consumption of any employee;
- goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;
- goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;
- goods and/or services on which tax has been paid under section 8 of the Act; and
- goods and/or services used for private or personal consumption, to the extent they are so consumed.
Assessment and Audit
The persons registered under the Act are themselves required to assess the tax payable by them for a tax period. After such assessment they shall also file the return required under section 27 of the Act.
Tax treatment of goods returned by the recipient
Where goods received as an inward supply is returned by the recipient to the supplier within six months from the date of the relevant invoice, the tax payable on such supplies shall be equal to the input tax credit availed earlier on such inward supply. Thus, if the recipient returns the goods to the supplier within six months of the date of its original supply, his tax liability on such returned goods will be the same as was at the time of the original supply. However, if goods are returned after six months of the date of the original supply invoice, the rate of tax applicable will be the rate prevailing on date of such return.
Circumstances under which a best judgment assessment order issued under section 46 of the Act can be withdrawn
If the taxable person furnishes a valid return for the default period (i.e. files the return and pays the tax as assessed by him), within thirty days of the receipt of the best judgment assessment order, the best judgment order passed by the Proper Officer under section 46 of MGL shall automatically stand withdrawn.
Circumstances in which Summary Assessment can be initiated
Summary Assessments can be initiated to protect the interest of revenue in the following situations:
- the proper officer has evidence that a taxable person has incurred a liability to pay tax under the Act, and
- the proper officer believes that delay in passing an assessment order will adversely affect the interest of revenue.
Such order can be passed after seeking permission from the Additional Commissioner / Joint Commissioner. A taxable person against whom a summary assessment order has been passed can either file an appeal or alternatively he can apply for its withdrawal to the jurisdictional Additional/Joint Commissioner within thirty days of the date of receipt of the order. If the said officer finds the order erroneous, he can withdraw it and direct the proper officer to carry out determination of tax liability in terms of the applicable provisions of the Act. Moreover, the Additional/Joint Commissioner can follow a similar course of action on his own motion if the finds the summary assessment order to be erroneous.
Audit of taxpayers
Any officer of CGST or SGST authorized by his Commissioner by a general or specific order may conduct audit of a taxpayer. Prior intimation of at least 15 days is required to be given to the taxable person prior to conduct of audit. The audit is required to be completed within 3 months from the date of commencement of audit or within a further period of a maximum of 6 months subject to the approval of the Commissioner.
A special audit can be instituted in limited circumstances where during scrutiny, investigation, etc. it comes to the notice that a case is complex or the revenue stake is high. A Chartered Accountant or a Cost Accountant so nominated by the Commissioner may undertake the Special audit.
“Refund” includes refund of tax on goods and/or services exported out of India or on inputs or input services used in the goods and/or services which are exported out of India, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilized input tax credit as provided under section 38(2) of the Act. Unutilized Input tax credit can also be allowed as refund in following cases as given in sub-section (2) of section 38 of the Act:-
(i) Exports of goods on which export duty is not payable;
(ii) Exports of services;
(iii) Where credit has accumulated on account of rate of tax on inputs being higher than the rate of taxes on Outputs.
The principals of unjust enrichment will apply except in cases of exports and refund of unutilized ITC as referred to in sub-section (2) of section 38 of the Act. In case where the tax incidence has been passed on to the consumer, the refund will be sanctioned as usual but the amount so determined shall be credited to the Consumer Welfare Fund. In order to negate the applicability of unjust enrichment provisions, the person concerned may furnish together with the application, such document(s) or evidence(s) to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was not passed on by him to any other person. As a compliance friendly measure, it has been provided that where the refund amount, as claimed, is less than Rs 5 lakh, merely a self-declaration will suffice.
Modes of recovery of tax available to the proper officer
The following options for recovery of tax are available to the proper officer:
- The proper officer may deduct or may require any other specified officer to deduct the amount so payable from any money owing to such person;
- The proper officer may recover or may require any other specified officer to recover the amount so payable by detaining and selling any goods belonging to such person;
- The proper officer may, by a notice in writing, require any other person from whom money is due or may become due to such person or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central or a State Government;
- The proper officer may, on an authorization by the competent authority, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; if the dues remains unpaid for a period of thirty days after any such distress, he may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and pay the surplus amount, if any, to such person;
- The proper officer may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector of the district in which such person owns any property or resides or carries on his business and on receipt of such certificate, the Collector shall proceed to recover from such person the amount specified as if it were an arrear of land revenue.
The broad objective for setting up Advance ruling mechanism is to:
- provide certainty in tax liability in advance in relation to an activity proposed to be undertaken by the applicant;
- attract Foreign Direct Investment (FDI);
- reduce litigation;
- pronounce ruling expeditiously in transparent and inexpensive manner.
‘Advance ruling’ means a written decision provided by the authority to an applicant on matters or on questions as enumerated in section 97 of the Act and appeals thereon (section 99 of the Act). Advance Ruling can be sought for the following matters:
- classification of any goods or services under the Act;
- applicability of a notification issued under provisions of the Act having a bearing on the rate of tax;
- the principles to be adopted for the purposes of determination of value of the goods or services under the provisions of the Act;
- admissibility of input tax credit of tax paid or deemed to have been paid;
- determination of the liability to pay tax on any goods or services under the Act;
- whether applicant is required to be registered under the Act;
- whether any particular thing done by the applicant with respect to any goods or services amounts to or results in a supply of goods or services, within the meaning of that term.
It is important to note that an advance ruling shall be binding only on the applicant and on the jurisdictional tax authority of the applicant. This clearly means that an advance ruling is not applicable to similarly placed taxable persons in the State. It is only limited to the person who has applied for an advance ruling.
The establishment of Settlement Commission serves to:-
- to provide an alternate channel for dispute resolution for the taxpayer;
- to expedite payment of GST involved in disputes by avoiding costly and time consuming litigation process;
- to provide an opportunity to tax payers to come clean who may have evaded payment of tax;
- to serve as a forum for the taxpayer to apply for settlement of their cases, on the basis of true and complete disclosure of their tax liability;
- to encourage quick settlement of disputes and save the business from the worries of prosecution in certain situations.
Any taxable person can apply for settlement of a case in relation to which he has been issued one or more show cause notice(s) under the IGST Act and the same is pending before the adjudicating authority or the First Appellate Authority.
Search, seizure, arrest, prosecution and compounding
Safeguards or limitations imposed on the power of search or seizure:
- Seized goods or documents should not be retained beyond the period necessary for their examination;
- Photocopies of the documents can be taken by the person from whose custody documents are seized;
- For seized goods, if a notice is not issued within sixty days of its seizure, goods shall be returned to the person from whose possession it was seized. This period of sixty days can be extended on justified grounds up to a maximum period of six months;
- An inventory of seized goods shall be made by the seizing officer;
- Certain categories of goods to be specified under Model GST Rules (such as perishable, hazardous etc.) can be disposed of immediately after seizure;
- Provisions of Code of Criminal Procedure 1973 relating to search and seizure shall apply. However, one important modification is in relation to sub-section (5) of section 165 of Code of Criminal Procedure which is to the effect that instead of sending copies of any record made in the course of search to the nearest Magistrate empowered to take cognizance of the offence, it has to be sent to the Principal Commissioner/ Commissioner of CGST/ Commissioner of SGST .
The Commissioner of CGST/SGST can authorize a CGST/SGST officer to arrest a person if he has reasons to believe that the person has committed an offence attracting a punishment prescribed under section 73 (1)(i), 73 (1)(ii) and 73 (2) of the CGST/SGST Act. This essentially means that a person can be arrested only where the tax evasion is more than fifty lakhs rupees or where a person has earlier been convicted for an offence under section 73 of the Model CGST/SGST Act.
The Act lists 21 offences enumerated hereunder:
- Making a supply without invoice or with false/ incorrect invoice;
- Issuing an invoice without making supply;
- Not paying tax collected for a period exceeding three months;
- Not paying tax collected in contravention of the MGL for a period exceeding 3 months;
- Non deduction or lower deduction of tax deducted at source or not depositing tax deducted at source under section 37;
- Non collection or lower collection of or nonpayment of tax collectible at source under section 43C;
- Availing/utilizing input tax credit without actual receipt of goods and/or services;
- Fraudulently obtaining any refund;
- Availing/distributing input tax credit by an Input Service Distributor in violation of Section 17;
- Furnishing false information or falsification of financial records or furnishing of fake accounts/ documents with intent to evade payment of tax;
- Failure to register despite being liable to pay tax;
- Furnishing false information regarding mandatory fields for registration;
- Obstructing or preventing any official in discharge of his duty;
- Transporting goods without prescribed documents;
- Suppressing turnover leading to tax evasion;
- Failure to maintain accounts/documents in the manner specified in the Act or failure to retain accounts/documents for the period specified in the Act;
- Failure to furnish information/documents required by an officer in terms of the Act/Rules or furnishing false information/documents during the course of any proceeding;
- Supplying/transporting/storing any goods liable to confiscation;
- Issuing invoice or document using GSTIN of another person;
- Tampering/destroying any material evidence;
- Disposing of /tampering with goods detained/seized/attached under the Act.
The levy of penalty is subject to a certain disciplinary regime which is based on jurisprudence, principles of natural justice and principles governing international trade and agreements. Such general discipline is enshrined in section 68 of the Act. Thus:
- no penalty is to be imposed without issuance of a show cause notice and proper hearing in the matter, affording an opportunity to the person proceeded against to rebut the allegations levelled against him;
- the penalty is to depend on the totality of the facts and circumstances of the case,
- the penalty imposed is to be commensurate with the degree and severity of breach of the provisions of the law or the rules alleged,
- the nature of the breach is to be specified clearly in the order imposing the penalty,
- the provisions of the law under which the penalty has been imposed is to be specified.
- section 68 further specifies that, in particular, no substantial penalty is to be imposed for any minor breach (minor breach has been defined as a violation of the provisions in a case where the tax involved is less than Rs.5000), or a procedural requirement of the law, or an easily rectifiable mistake/omission in documents (explained in the law as an error apparent on record) that has been made without fraudulent intent or gross negligence.
Further, wherever penalty of a fixed amount or a fixed percentage has been provided in the MGL, the same shall apply. The existence of a state of mind i.e. “culpable mental state” or mens-rea is an essential ingredient required to commit an offence. Even a company be proceeded against or prosecuted for any offence under the MGL. In such cases, every person who was in-charge of or responsible to a company for the conduct of its business shall, along-with the company itself, be liable to be proceeded against and punished for an offence committed by the company while such person was in-charge of the affairs of the company. If any offence committed by the company has been committed with the consent/ connivance of, or is attributable to negligence of any officer of the company then such officer shall be deemed to be guilty of the said offence and liable to be proceeded against and punished accordingly.
The registered taxable person shall be entitled to CENVAT/Input Tax credit carried forward in the last return prior to GST and it will get credited to his electronic credit Ledger.
The political consensus on GST has been gradually evolving and the way towards its implementation will still involve lot of political negotiations. The compensation to states still remains an unfinished agenda. As of now some 75% of the targeted 60000 revenue officers have been trained for GST. While the Government had been trying to operationalize the GST on 1st April 2017 it has also indicated that since it is a transaction based and not a period based tax so it could even be implemented in the middle of the financial year say by September 16, 2017. Once operationalized this would be the greatest piece of reform to have been unleashed since 1991 and will be game-changer. It may even serve as a model to be followed by other large federal systems of the world.
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