Implication and the Impact of the wrong application of the “ GST ”





Pic :: Small Business Houses Fighting For Survival 

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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Comments

  1. 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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