Levy under GST
- The introduction of GST Laws was the dawn of new era in Indirect taxes structure in India. The structure of multiple taxes was established over a period of few years. Although it was not leading to double taxation, the illusionary effect of multiple taxes, gave the impact of double taxation more or less. With the introduction of GST however, the multifaceted structure of Indirect taxes however changed its course. The idea of introduction of GST was to have it as “one nation one tax”. The introduction of a “single” tax was definitely a huge change. Moreover it gave a reflection that the structure of Indirect Taxes in India would be very simple thereafter.
- The word levy means to impose, or charge of tax. It will be pertinent to note that the imposition of tax is always dependent on the factor of “taxable event”. A taxable event means an activity which leads to the levy of tax. Under the Pre-GST regime, as discussed above, there were multiple taxes under the Indirect tax structure. The taxable events were however distinct for each of the tax. “Central excise duty” was levied on the activity of “manufacture of excisable goods”. Service tax was levied on activity of “provision/rendering of services”. Sales tax (VAT/CST), was levied on the activity of “sale of goods” etc. Now, with the introduction of GST, what could be achieved was the reduction in the number of taxes and thus the identifiable taxable event under GST is only a single event to be called as “Supply”. Although the levy of Excise and Sales tax continue only for a select few goods, for all other supplies of taxable goods and services, GST is the only tax which would be levied under this regime. We have already discussed the meaning and scope of the word “Supply”. The scope of the word supply is
Provisions of the “charging section” under the GST Laws:
- The provisions of the charging section are same under the CGST Act 2017, UTGST Act 2017, IGST Act 2017, respective state GST Act’s. Only the levy of the tax differs as (Central tax/Union territory tax/State tax and integrated tax respectively). In case of IGST Act, the type of supply to be considered is “Inter-state supply”. Also the upper ceiling limit rate of tax under the IGST Act 2017 is “forty percent” instead of “twenty percent” under other acts.
Clause wise analysis of the Section 9 of the CGST Act 2017:
- (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.
- The levy of tax is on the activity of supply. Supply may be of “goods/services or both”. Thus in first place if any activity amounts to a supply as per Section 7 of the CGST Act 2017 and the schedules to the CGST Act 2017, only then arises a question of levy of tax. Depending on the type of supply that is to say if it is an “Intra-state supply” (CGST+SGST/UTGST) will be leviable and if the type of supply is an “Inter-state” supply, IGST would be leiviable. Many a times a question pops up, as to why to levy a combination of (CGST+SGST)/ (CGST+UTGST) in case of an intra-state supply and why only a single IGST in case of an Inter-state supply?
- The reason for this is found in the charging section in itself. For the purpose of levy of the central tax and state/union territory tax, “Intra state supply” is a common taxable event. Thus every time whenever there is a occurrence of “intra state supply” it is liable for (CGST+SGST)/(CGST+UTGST). However in case of an “Inter-state supply”, there would only be a levy of “IGST” for an Inter-state supply the only applicable tax is IGST. The tax is to be levied on a value which is ascertained as per the provisions of valuation under section 15 of the CGST Act 2017 as well as CGST Valuation Rules 2017. The discussion in respect of valuation and the mechanism will be covered in depth under our blog on “Valuation of Supply”. Under the GST Laws, there is no “Tariff” unlike under the Central Excise Act 1944 or Customs Act 1962, the rates of tax for goods/services are notified by the Central Government on the recommendation of the GST council. Although it would be pertinent to note that the levy of tax and the liability thereof would be only on the “Taxable person” as defined under the CGST Act 2017. Taxable person means any person who is liable to pay GST under the CGST Act 2017.
- Alcoholic liquor for human consumption has been categorically excluded from the imposition of GST. The reason being, it would be continued to be tax under the “State Excise Acts” and the “State VAT Acts”. However it must be distinctly remembered, while considering the exclusion from the “levy”, only “Alcoholic liquor for human consumption” has been mentioned. Meaning thereby, there can be products containing alcohol such as cough syrup, deodorants etc, the same will not be excluded from the levy just because they contain alcohol.
- (2)The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol),natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.
- As per the provisions of sub section 2, it can be understood that the levy on goods specified therein, is to be made effective at a future date. That is to say as of now, even if there is a supply of the above mentioned goods, there would be no GST implications on such supplies as of now.
- 3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
- Under “Indirect taxation”, a taxable person is supposed to collect tax from the customer and pay the same to government, wherein such taxable person acts as an agent of the government. Thus the responsibility to collect and pay the tax is on the “taxable person”. As per the provisions of the sub section 3, it can be observed that the responsibility to pay the tax is shifted upon the recipient. This shift in responsibility to pay GST is fondly known as “Reverse charge mechanism”. This provision already existed under “Service Tax” and in case of molasses procurement under the “Central Excise Act”. Usually it can be observed that, in cases where the Central Government finds it cumbersome to administer the tax collection due to certain limitations, the responsibility to collect and pay taxes is shifted on the recipient. This is done to ensure, ease of administration as well as stoppage of revenue (tax) leakage.
- Eg: In case of import of services, the supplier/provider of services is located outside India, but the recipient of services is located in India. In such case, the service is liable for GST. Now it would be challenging for the government to make the provider/supplier of services to take a registration in India and also to make him liable to pay the tax. Thus in such cases, the recipient is made responsible to pay the applicable tax to the government.
- By virtue of notifications issued under the CGST Act and IGST Act respectively, supply of certain goods and services has been notified. The responsibility to pay GST, on such supplies is upon the recipient of such supplies. Often it is said that under the “reverse charge mechanism” the “liability” to collect and pay the tax is shifted upon the recipient. Whereas we have consistently observed that only the responsibility to collect and pay GST is on the recipient. The word “responsibility” has been specifically used. It would be important to note that the liability to bear the tax is always upon the recipient whether paid by the supplier under forward charge or by the recipient under reverse charge. Under the reverse charge mechanism only the modus operandi is different.
- (4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
Amendments as per the CGST Amendments Act 2018:
- (4) In section 9 of the principal Act, for sub-section (4), the following sub-section shall be substituted, namely:–– “(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.”.
- Section 9(4) of the CGST Act 2017, Section 5(4) of the IGST Act, and also respective sections under the state/union territory act, has been one of the most discussed and debated provisions of the CGST Act 2017. This provision was a major step taken by the government to bring maximum transparency of transactions carried out by the unregistered and unorganized sector, with the buyers in organized sector. Also to increase the tax collection the aforementioned provision was expected to play a vital role. The provision as per the initially introduced sub section (4) CGST Act/IGST Act/UTGST Act and State GST Acts, mentioned that “any supply of taxable goods or services by a non-registered person to a registered person would be liable for GST in the hands of recipient under reverse charge mechanism. This provision hardly had seen some light of the day and within few months of the introduction of GST Laws, the effect of this provision was put under suspension. The issue with the existence of provision was that the registered tax payers were finding it really challenging to keep the records and also do a compliance of the same in their GST returns. Therefore keeping in mind the difficulties faced by the tax payers this provision was amended. Under the amended provision, it now states that only in case of notified tax payers, the Central Government will notify specific type of supplies, if are made by unregistered persons to registered person, then in respect of such supplies the tax would be payable by the recipient under the reverse charge mechanism. Thus now not in all supplies made by unregistered persons to registered person but only for notified supplies the provisions of amended sub section 4 will apply.
- (5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services.
- Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax.
- Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.
- With the emerging trends of business through the e-commerce platform, this specific provision has been incorporated. Where any supplier of services provides services through the e-commerce platform, it is well understood that the services would be taxable. The responsibility to pay the tax in respect of services which are provided through the e-commerce operator is upon the e-commerce operator. In order to ensure that the taxes are levied on the full value of supply of services, this modus operandi is extremely effective.
- Eg: In case of an aggregator (e-commerce operator) say OBA cabs. The cab driver in such case is the actual service provider, we are the customers and we use the phone applications of OBA cabs. Thus OBA cabs, facilitates the provision of service by the cab driver to the customer through its application. Usually in such business the value of services to the customer consist of revenue of cab driver as well as OBA cabs. In such case, OBA cabs will be liable to pay GST on the portion of value of services which are provided by the cab driver, under the reverse charge mechanism by virtue of provisions of sub section 5. As far as the portion of revenue of OBA cabs is concerned, the same is liable for GST under the forward charge mechanism as that is the fees charged by OBA cabs to the customer directly.
CA Aumkar Gadgil
- Disclaimer: The views provided above are on the basis of our understanding of the GST Laws, Rules and Regulations. The adjudicating or Judicial Authorities may or may not agree with the views expressed above