GST Bills reaches Lok Sabha, has anti-profiteering clause

The Goods and Services Tax (GST) Bills – Central GST (CGST), integrated GST (IGST), Union Territory GST(UTGST) and Compensation to states – introduced in the Lok Sabha on Monday has an anti-profiteering clause, disregards service sector's demand for single registration, zero-rates supplies to special economic zones (SEZs) and caps GST rate at 40%.

While the draft bills placed before the Parliament do not have many surprises, they are slightly different from the versions published earlier.

The legislations, introduced in the lower house by Finance Minister Arun Jaitley, also has a provision for arrest in case of evasion of tax.

Under the UTGST law, movement of goods and services between states and UTs of Andaman and Nicobar Islands, Daman and Diu, Chandigarh, Lakshadweep, Dadra and Nagar Haveli would be treated as inter-state supplies which would attract GST levy.

The IGST, which will be imposed and collected by the Centre on the inter-state transactions, has been capped at 40% while the ceiling for CGST has be set at 20%. The GST Council, formulated for working on the broad structure of the GST laws, has decided on a four-tier rate structure of 5%, 12%, 18% and 28% for the unified indirect tax. It has provided an enabling provisions of a higher limit of 40% for GST and 15% for cess.

Adhering to the recommendation commerce ministry, the GST legislation does not tax supplies to SEZs and has been zero rated.

Another surprise has been exclusion of J&K. It is not clear what kind of taxes would apply to the northern-most state of India.

Under the CGST Bill, e-commerce companies have been provided with provision to collect tax at source at a rate not more than 1% of net value of taxable supplies, out of payments to suppliers supplying goods or services through their portals.

The Compensation Law lists the 5-6 goods – paan masala, tobacco, aerated waters, luxury cars and coal – on which cess would be levied for creating compensation non-lapsable fund to make good revenue losses to the states due to GST implementation.

Compensation to the states will be paid on a bi-monthly basis and would be calculated taking into account 14% growth rate in state tax revenues with the base year taken as 2015-16.

It has been capped at 135% for paan masala, Rs 400 per tonne on coal, Rs 4,170 per thousand cigarettes sticks, or 290% ad valorem and 15% on aerated water and luxury cars.

The laws also provide for a low tax rate to small enterprises of no more than 1% of turnover for manufacturers with annual turnover of up to Rs 50 lakh while it has fixed a 2.5% tax rate for suppliers.

Despite loud protest from the industry, the anti-profiteering clause has been retained to protect consumers and to ensure that benefits from input tax credits are passed on them from businesses.

Under the law, an Authority would be constituted to examine whether input tax credits availed by any registered taxable person, or the reduction in the price on account of any reduction in the tax rate, have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.

It also has a provision under which in the event of suppression of any transaction or tax evasion an arrest can be ordered with an up to five years of imprisonment and/or fine.

Pratik Jain, partner and leader, indirect tax, PwC India, said there was still clarity awaited "on certain crucial aspects such as credit of tax paid on opening stock, anti-profiteering provisions, inter-office supplies and so on".

"As next steps, industry would hope that adequate time is given to the working groups constituted last week on various sectors to examine the critical issues and provide their recommendations. The Rules, which are to be taken up by the GST Council on March 31, also assume significance," he said.

According to Jain, as there still a lot of ground to be covered, it would be good to implement GST by September 1 and give couple of more months to the industry to prepare for GST.