INTERPRETATION OF CENTRAL GOODS AND SERVICES TAX (CGST) ACT (PART-1)

[Dr. Sanjiv Agarwal]

The Central Goods and Services Tax Act, 2017 has been enacted to make a provision for levy and collection of tax on intra-state supply of goods or services or both by the Central Government and the matters connected therewith or incidental thereto. This series of Articles shall analyze the provisions of Central Goods and Services Tax Act, 2017, which has been enacted on 12 April, 2017.

Objects of CGST Law

Presently, the Central Government levies tax on, manufacture of certain goods in the form of Central Excise duty, provision of certain services in the form of service tax, inter-State sale of goods in the form of Central Sales tax. Similarly, the State Governments levy tax on and on retail sales in the form of value added tax, entry of goods in the State in the form of entry tax, luxury tax and purchase tax, etc. Accordingly, there is multiplicity of taxes which are being levied on the same supply chain.

The present tax system on goods and services is facing certain difficulties as under-

1. there is cascading of taxes as taxes levied by the Central Government are not available as set off against the taxes being levied by the State Governments;
2. certain taxes levied by State Governments are not allowed as set off for payment of other taxes being levied by them;
3. the variety of Value Added Tax Laws in the country with disparate tax rates and dissimilar tax practices divides the country into separate economic spheres; and
4. the creation of tariff and non-tariff barriers such as octroi, entry tax, check posts, etc., hinder the free flow of trade throughout the country. Besides that, the large number of taxes create high compliance cost for the taxpayers in the form of number of returns, payments, etc.

In view of the aforesaid difficulties, all the above mentioned taxes are proposed to be subsumed in a single tax called the goods and services tax which will be levied on supply of goods or services or both at each stage of supply chain starting from manufacture or import and till the last retail level. So, any tax that is presently being levied by the Central Government or the State Governments on the supply of goods or services is going to be converged in goods and services tax which is proposed to be a dual levy where the Central Government will levy and collect tax in the form of central goods and services tax and the State Government will levy and collect tax in the form of state goods and services tax on intra-State supply of goods or services or both.

Need for GST Law

In view of the above, it has become necessary to have a Central legislation, namely the Central Goods and Services Tax Act, 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 within a State. The proposed legislation will simplify and harmonise the indirect tax regime in the country. 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. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of goods and services tax that would incentivise tax compliance by taxpayers. The proposed goods and services tax will broaden the tax base, and result in better tax compliance due to a robust information technology infrastructure.

Salient Features of CGST Act

The Central Goods and Services Tax Act, 2017, inter alia, will provide for the following, namely:-

1. to levy tax on all intra-State supplies of goods or services or both except supply of alcoholic liquor for human consumption at a rate to be notified, not exceeding twenty per cent. as recommended by the Goods and Services Tax Council (the Council);
2. to broad base the input tax credit by making it available in respect of taxes paid on any supply of goods or services or both used or intended to be used in the course or furtherance of business;
3. to impose obligation on electronic commerce operators to collect tax at source, at such rate not exceeding one per cent. of net value of taxable supplies, out of payments to suppliers supplying goods or services through their portals;
4. to provide for self-assessment of the taxes payable by the registered person;
5. to provide for conduct of audit of registered persons in order to verify compliance with the provisions of the Act;
6. to provide for recovery of arrears of tax using various modes including detaining and sale of goods, movable and immovable property of defaulting taxable person;
7.  to provide for powers of inspection, search, seizure and arrest to the officers;
8. to establish the Goods and Services Tax Appellate Tribunal by the Central Government for hearing appeals against the orders passed by the Appellate Authority or the Revisional Authority;
9. to make provision for penalties for contravention of the provisions of the proposed Legislation;
10. to provide for an anti-profiteering clause in order to ensure that business passes on the benefit of reduced tax incidence on goods or services or both to the consumers; and
11. to provide for elaborate transitional provisions for smooth transition of existing taxpayers to goods and services tax regime.

The Notes on clauses to Bill explain in detail the various provisions contained in the Central Goods and Services Tax Act, 2017.

Taxonomy of CGST Act

The CGST Act, 2017 comprises of 174 Sections in 21 Chapters and three Schedules on supplies without consideration, treatment of activities as to goods or services and activities which shall be considered as neither goods or services. These Schedules are as under:

Schedule I.	Activities to be treated as supply even if made without consideration
Schedule II.	Activities to be treated as supply of goods or supply of services
Schedule III.	Activities or transactions which shall be treated neither as a supply of goods nor a supply of services

Origin and Commencement (Section 1)

• CGST Act will extend to whole of India excluding the states of Jammu and Kashmir.
• Jammu and Kashmir will need to approve levy of GST in its State assembly, on account of its special powers on taxation under article 370 of the Constitution. Once this is done, GST shall be introduced in the State.
• The CGST Act shall come into force from a date which will be notified by the Central Government in Official Gazette, i.e. from the appointed date.
• Different provisions may be made applicable from different dates as may be notified.

(To be continued......)

Discussions to this article

[Ganeshan Kalyani]

Sir, nice article. Sir, it is mentioned that CGST provision is not applicable in Jammu & Kashmir. But it seems that SGST & IGST will be applicable.

[MARIAPPAN GOVINDARAJAN]

Section 1(2) of IGST Act, 2017 provides that the Act shall extend to the whole of India except the State of Jammu and Kashmir. But Section 1(2) of the Goods and Services Tax (Compensation to States)Act, 2017 provides that the Act extends to the whole of India.

[Dr. Sanjiv Agarwal]

Noted your comments. Yes, you are correct. It is expected that GST would apply to J & K State too for which they need to pass a special resolution in State assembly. Presently, such power is not there with Union Government.

J & K will have to pass special laws to be able to implement the GST as its correct Constitutional status does not mandate the applicability of new indirect tax (GST) in that State. Since now, CGST and IGST laws have already been enacted, J & K Assembly will have to pass a legislation to the effect that the two laws are applicable to J & K State.