Implication and the Impact of the wrong application of the “ GST ”
This is my THIRD write up on the same subject and on the same headline.
The Goods and the Service tax had and has drawn and keeps on drawing many
concerns on the same.WHY- this is the pertinent question that arises as always,
and this needs to be answered as well.
Today I would put my points on a surface
to surface level of my reading into it but therafter the entire article would
boil down on the classification of the product in terms of the MARKETING terminology
and domain and then the whole explanation would be put for the Government and
the readrs to read it, to ponder over it and to bring in the change.
At this point of a time when the GDP had
very BADLY fallen down to about 1.9 percent with almost all the industry and
jobs going to the HELL, it becomes very PERTINENT to deeply analyse the points
and suggest the Government all about the WRONG application and imposition of
the taxes on the product and how to reform the same so that the normalcy is
again restored.
IMPORTANCE OF THE APPLICATION AND
LIFEBLOOD
The entire nation was
looking at the GST and it’s implementation and the nation got the GST
implemented under the leadership and PREMEIRSHIP of Mr Narendra Modi. This form
of taxation has been considered as the BEST and as the REVOLUTIONARY amongst
all the taxes .Anybody and everybody who pays the taxes was and is looking at the implementation of GST as a
biggest tax reform in India since the liberalization in the Year 1991.
The GST
aims at bringing uniformity in the way the Goods and Services would be taxed by way of a common levy of tax,
for Goods as well as Services. What were
thr common mass lokking were and was the fact that the UNIFORITY of the payment
for the taxes would be resumed and it would be even and square for the taxes implied that would make the
people feel at ease when paying the tax.
Unified tax Regime :: The Concept & the “
CASCADING ” EFFECT
With the concept
introducing a unified tax regime,
it is expected that cascading effect of taxes will be reduced and thereby
reducing the cost of Goods and Services. By now, GST is known as “ One Nation, One Tax ” in its
popular sense and entire India will be looked at as a single market place. It
means that wherever you go at India and wherever you buy any product, the taxes
implied on the product that you are buying will be the same everywhere.This
would reduce the burden of an unsimiliar levies of the taxes and the final cost
that one pays to buy the product is the same and uniform everywhere.
Pic :: Unified Tax Regime
At present, there are
different levy of taxes for Goods and Services respectively by different
Governments. Not only that the different
states imply different kind of taxes at different places and this is a FURORE
that originates the problem of UNEQUAL pricing and the COST and this damages the
concrete of the tax modulation and formulation.
The legislations dealing with VAT, ( Value Added Tax ) Excise and Service Tax are independent
of each other and a transaction is often subject to both VAT and Service Tax
or Service Tax and Excise due to the lack of clarity in the Taxing
Statutes. In the existing tax regime, which is not that clear and is filled with all
ambiguity , a lot of time and efforts are being spent in litigating whether a
particular transaction is a transaction in Goods or Service due to a very
simple fact . Those are one side of the
coin and the other side is that the goods attract levy of VAT whereas Services
attract levy of Service Tax and the Governments which levy VAT and Service Tax
are different. Now this raises issues and concerns and makes the tax paying
structure a bad tax reforms ( BTR) as we call it and as that has been witnessed
by the tax payers ever since 1970. The wrong policy and the payment is going on
ever since then and the Government who ruled the country had never made an
attempt to rectify that.
Government
Will Run It’s Business The way They Can , However The Reforms Are Needed
It’s obvious that every Government will pursue
for its share of revenue on a particular transaction and that a conservative
tax payer would not wish to fight
with both Governments and accepts the proposition of the levy of tax by the
Centre as well as the State on the same transaction which adds to the cost of such
transaction. These costs are really a BURDEN
and they are very heavy for the Tax payers to pay it. This also becomes a CRUX and a AXE for the business doers to bear and carry on bearing it
to pay the taxes very correctly.
It was thus envisaged that the GST will in a
large manner would exemplify all about the EVENNESS
of the tax payment . With GST being
implemented, it is well known that a common levy of Tax on Goods and Services
will be applicable. This is expected at least to ensure that the dispute of
whether it is Goods or Services will not exist anymore. The GST infact was
expected to cast away all the ill feelings of the payment of taxes and KILL all
the disputes that would arise of the payment and the modules of the same when
it boiled to the tax payment. It would
become redundant to fight for
classification of Goods V/s ie versus Services since despite the classification, a
tax payer will still be paying GST only. The question is HAS
THERE BEEN ANY DISPUTES NOW ARISING OUT OF THE SAME AND WHETHER THE GST IS A
TOOL FOR AN EVEN TAX PAYMENT STRUCTURED TO DISPEL ANY ANAMOLIES
However, the following factors under
Model GST law still discriminates between Goods and Services and it becomes
very important that a transaction is rightly classified as Goods or Service:
·
Time
of Supply
·
The Point of Taxation
under Model GST law for Goods and Services are different. The time at which the
liability to pay GST crystalizes in respect of Goods can be different to that
of a Service. The impact of timing difference of Goods V/s Servicecan be
understood from the below example :
Supply of Food as part
of a Service is deemed to be a “ Supply of Service ” under the
Model GST Law. At the same time, Supply of Goods by Unincorporated Association
or Body of Individuals to its members is deemed as “ Supply of Goods ”. Under
that circumstances, a Club
(which can be said as Unincorporated Association) is providing food to its
members and it is the last day of the month, say April. Due to the relationship
with the members, let us assume that the club raises invoice for the food
supplied, with a description that “ charges for foods supplied on 30th April ”, say after 15 days i.e in May. The club has
wrongly classified the said transaction as “ Supply of Service ” going by the
deeming fiction under Model GST law without the knowledge of the fact that any
supply of goods by a club to its members will be deemed as “ Supply of Goods ”.
The event of removal
of goods or making available the goods is the first event followed by raising
of the invoice which is second event. Since the club is under presumption that
is supply of service, it will consider the payment of GST on the above
transaction for the month of May since the date of raising the invoice is May.
Whereas, as per the Model GST law the above transaction is supply of goods and
the event of removal of goods for supply or making available the goods in the month of April itself had
crystalized the liability to pay GST. This implies that the club has
delayed the payment of GST by one month which can have impact by way of interest and penalty exposure and can also
have impact on the working capital
requirements.
·
Place
of Supply
·
T As one would take it for knowing the fact, the place of Supply takes paramount importance under GST regime since GST is destination based unlike origin based taxation under VAT or CST. The place of supply of Goods or Services determine whether CGST/SGST has to be charged or IGST has to be charged. The Model IGST Act has formulated principles to determine the place of supply of Goods and Services.
The principles
formulated for Goods and Services to determine the Place of Supply is not the
same under Model IGST Act for obvious
reasons. Accordingly, a wrong classification of a transaction can have
an impact in terms of Place of Supply followed by the Tax which was applicable
on the same.
For a better
understanding, let us assume that Ram
Ltd is big FMCG Company in Bangalore and his also registered under GST Law. It
also manages its transportation and logistics function through its own fleet of
vehicles. One of the vehicles of A Ltd breaks down outside Karnataka on its way to Hyderabad for supply of goods.
Assuming, Ram Ltd engages another company in Karnataka, say Ghanshyaam Ltd to tackle this situation
and Ghanshyaam Ltd sends its engineers for inspection of the vehicle and also
for repair if required along with spare parts. Here noe the Ghanshyaam Limited Ltd has
considered this transaction of repairing the vehicle as supply of goods and
charged IGST since there was a movement of the goods from one State to another.
However, this transaction of repair can be classified as “ Works Contract ” due to the very wide definition of “ Works
Contract ”under the Model GST Law. Works Contract is deemed to be a Supply of
Service as per the Model GST law and the place of supply of a Service, if
service is provided to registered person is location of such person.
In the current case,
location of Ram Limited and Ghyamshyam
Limited, is within Karnataka and hence the transaction of repair was required
to be charged under CGST & SGST
Act and not as per IGST
Act since the location of
supplier and place of supply both are within the same states. This situation
may lead to initiation of proceedings by the State Governments to recover the
share of SGST in the said
transaction along with interest and penalty exposures.
·
Tax
Rates
·
It is expected that
GST law would have multiple tax rates unlike the existing Service Tax law due
to the fact that different rates are
prescribed for Goods of different importance. The goods of national
importance and basic necessities might be exempt and the luxury goods can be
taxed at higher rates. Accordingly, it is very important to understand whether
a transaction is “ Goods ” or “ Services ” and the GST rate would also vary
accordingly. It might be possible that due to a wrong classification, the GST
paid on such transaction might be
more than what was required and vice versa.
For a better
understanding, let us assume that Karuna
Limited, a registered person under GST law is in the business of leasing
Computers without the transfer of title to the goods. It has been charging GST
on said transaction as applicable in case of “ Computers ”. Under the VAT
regime, Computers have history of lower tax rates between 4% to 5.5% and it can
be reasonably expected that the same would continue in GST regime. As per the
Model GST law, any transfer of right to use the goods without transfer of title
is deemed as “ Supply of Service ”
and it is expected that the tax rates in case of Supply of Service will be at RNR. In this situation, it can
be understood that Karuna Limited has been charging lower rate of tax assuming
it was a transaction in Supply of Goods rather than Supply of Service and hence
Karuna Limited Limited will be facing serious consequences by way of interest
and penalty.
Conclusion - ::
Above
are few illustrative situations that may still lead to litigation as “ Goods Vs Services ” even under GST
regime and many more situations can be expected which can be of the
same nature as described above.
Thereby
a THOROGH case studies and analysis on a fact-to-fact and point-to-point basis,
could be studied and analyzed and then a factual way of actual implementation
of the GST could be implemented which will reduce the anomalies and the wrong ‘uns
with utmost sincerity and care, and hence it is of utmost importance to every
tax payer to carefully structure their Indirect Tax function by proper
inference of the GST Law.
The
views expressed in this article are personaland it is jotted here after
studying certain cases which actually reflects all about correcting the GST for
making it so very effective and easy for implementation as well as a soothing
mean for the Tax payers as well as the business class to fall upon this to make
the payment after fully understanding the GST in terms of it’s structure and
modulation as well as in the manner that it is laid for finally making a
meaningful payment .
I have
made my points according to my THOUGHT. However if needed be it could be more
deeply studied and correction made to finally implement them. I’m NOT a
CHARTERED ACCOUNTANT or a TAX CONSULTANT , but whatever LITTLE knowledge that I have encountered
during my job in this matter has been untilled to utilise them , by me to explain the same and
correct the anomalies that exists. One can, ONE SHOULD and ONE OUGHT TO consult
his advisers of the same, and hence you
may consult your tax advisor on the said matter before taking any decision .
This
has KILLED and is still killing many a SMALL-PETTY and LAID BACK business unit
in the MINI and the SMALL SCALE sector and some of the industries falling under
the COTTAGE SECTOR too are dwindling away. I have just cited the example of the
sector that deals with a very small units of truck that is engaged in the
business and it is for the EXPERTS in the Government to ecide upon this.
I BET
and SAY about 35% or more of the jobs that is being done by the one’s who fall
in these sectors as well as the business will show a BUMP with the Government
of the day finding that ENORMOUS jobs in the end of the BOTTOM that reins on and in the business has started and would start seeing the SUNNY
DAYS.
Well , that is it
Regards and Thanks
Shyamal Bhattacharjee
Mr Shyamal Bhattacharjee, the author was born at West Chirimiri Colliery at District Surguja, Chattisgarh on July 6th 1959 He received his early education at Carmel Convent School Bishrampur and later at Christ Church Boys' Higher Secondary School at Jabalpur. He later joined Hislop College at Nagpur and completed his graduation in Science and he also added a degree in B A thereafter. He joined the HITAVADA, a leading dailies of Central India at Nagpur as a Sub-Editor ( Sports ) but gave up to complete his MBA in 1984 He thereafter added a Diploma In Export Management. He has authored THREE books namely Notable Quotes and Noble Thought published by Pustak Mahal in 2001 Indian Cricket : Faces That Changed It published by Manas Publications in 2009 and Essential Of Office Management published by NBCA, Kolkatta in 2012. He has a experience of about 35 years in Marketing
Signature Of Shyamal Bhattacharjee
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Oops just got to the end of this article, a mind boggling reading. Wish your efforts in putting up this doesn't fall on deaf ears. Concerned persons would have a read up & deduce relevant matters to authorities concerned with the subject.
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