MEMO - MEMORANDUM REGARDING DELEGATED LEGISLATION - Integrated Goods And Services Tax Act, 2017

MEMORANDUM REGARDING DELEGATED LEGISLATION Clause 22 of the Integrated Goods and Services Tax Bill seeks to empower the Central Government to make rules, inter alia, in the following matters, namely:- (a) collection of taxes under section 5; (b) determination of place of supply under section 10; (c) apportionment of value of supply of services when the immovable property or boat or vessel is located in more than one State or Union or when the leased circuit is installed in more than one State or Union territory or when the event is held in more than one State or Union territory or for advertisement services under section 12; (d) the place of supply of services referred to in section 13 when they are supplied in more than one State or Union territory under that section; (e) conditions and safeguards for refund of integrated tax paid on supply of goods to tourist leaving India under section 15; (f) procedure and safeguards for supply of goods or services under bond or on payment of integrated tax and then taking refund under section 16; (g) manner in which apportionment of tax and settlement of funds will take place under section 17; (h) manner and time in which input tax credit will be transferred under section 18; (i) manner in which tax wrongfully collected and paid to Central Government or State Government is to be refunded under section 19; and (j) any other matter which is to be, or may be, prescribed, or in respect of which provision is to be made, by rules. 2. Clause 23 of the Bill empowers the Board to make regulations to provide for any matter which is required to be, or may be, specified by regulation or in respect of which provision is to be made by regulations. 3. The matters in respect of which the said rules and regulations may be made are matters of procedure and administrative detail, and as such, it is not practicable to provide for them in the proposed Bill itself. The delegation of legislative power is, therefore, of a normal character. FINANCIAL MEMORANDUM Clauses 17 and 18 of the Bill provides for apportionment of tax and settlement of funds and for transfer of input tax credit between the Central Government, State Government and Union territory. 2. Clause 20 of the Bill provides for application of provisions of the Central Goods and Services Tax Bill, 2017 relating to appeals, advance ruling and anti-profiteering. So authorities under the Central Goods and Services Tax Act will be utilised for the purposes of the proposed legislation. Thus there will be no extra financial expenditure under this Bill. 3. The total financial implications in terms of recurring and non-recurring expenditure involved in carrying out the various functions under the Bill would be borne by the Central Government. Most of the existing officers and staff of the Central Board of Excise and Customs would be used for carrying out the various functions under the Bill. However, it is not possible to estimate the exact recurring and non-recurring expenditure from the Consolidated Fund of India at this stage. STATEMENT OF OBJECTS AND REASONS Presently, article 269 of the Constitution empowers the Parliament to make law on the taxes to be levied on the sale or purchase taking place in the course of inter-State trade or commerce. Accordingly, Parliament had enacted the Central Sales Tax Act, 1956 for levy of central sales tax on the sale taking place in the course of inter-State trade or commerce. The central sales tax is being collected and retained by the exporting States. 2. The crucial aspect of central sales tax is that it is non-vatable, i.e. the credit of this tax is not available as set-off for the future tax liability to be discharged by the purchaser. It directly gets added to the cost of the goods purchased and becomes part of the cost of business and thereby has a direct impact on the increase in the cost of production of a particular product. Further, the fact that the rate of central sales tax is different from the value added tax being levied on the intra-State sale creates a tax arbitrage which is exploited by unscrupulous elements. 3. In view of the above, it has become necessary to have a Central legislation, namely, the Integrated Goods and Services Tax Bill, 2017. The proposed Legislation will confer power upon the Central Government for levying goods and services tax on the supply of goods or services or both which takes place in the course of inter-State trade or commerce. The proposed Legislation will remove both the lacunas of the present central sales tax. Besides being vatable, the rate of tax for the integrated goods and services tax is proposed to be more or less equal to the sum total of the central goods and services tax and state goods and services tax or Union territory goods and services tax to be levied on intra-State supplies. It is expected to reduce cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. It is also expected that introduction of the integrated goods and services tax will foster a common or seamless Indian market and contribute significantly to the growth of the economy. 4. The Integrated Goods and Services Tax Bill, 2017, inter alia, provides for the following, namely :- (a) to levy tax on all inter-State supplies of goods or services or both except supply of alcoholic liquor for human consumption at a rate to be notified, not exceeding forty per cent. as recommended by the Goods and Services Tax Council (the Council); (b) to provide for levy of tax on goods imported into India in accordance with the provisions of the Customs Tariff Act, 1975 read with the provisions contained in the Customs Act, 1962; (c) to provide for levy of tax on import of services on reverse charge basis under the proposed Legislation; (d) to empower the Central Government to grant exemptions, by notification or by special order, on the recommendations of the Council; (e) to provide for determination of the nature of supply as to whether it is an inter-State or an intra-State supply; (f) to provide elaborate provisions for determining the place of supply in relation to goods or services or both; (g) to provide for payment of tax by a supplier of online information and database access or retrieval services; (h) to provide for refund of tax paid on supply of goods to tourist leaving India; (i) to provide for apportionment of tax and settlement of funds and for transfer of input tax credit between the Central Government, State Government and Union territory; (j) to provide for application of certain provisions of the Central Goods and Services Tax Act, 2017, inter alia, relating to definitions, time and value of supply, input tax credit, registration, returns other than late fee, payment of tax, assessment, refunds, audit, inspection, search, seizure and arrest, demands and recovery, appeals and revision, offences and penalties and transitional provisions, in the proposed Legislation; and (k) to provide for transitional transactions in relation to import of services made on or after the appointed day. 5. The Notes on clauses explain in detail the various provisions contained in the Integrated Goods and Services Tax Bill, 2017. 6. The Bill seeks to achieve the above objectives.