FEBRUARY 20, 2017

By Nikhil Mediratta, Associate, Lakshmikumaran & Sridharan

THE Constitution (One Hundred and First Amendment) Act, 2016, dealing with Goods and Service Tax was passed by the Parliament and received Presidential assent on September 08, 2016. A second draft of the Model GST Law was issued in public domain in the month of November 2016. All indications are that GST would be implemented effective July 01, 2017.

With the above in mind, let us see whether the provisions of the Model GST Law have addressed a situation where there is a change in the effective rate of tax .

As regards services, Rule 4 of the Point of Taxation Rules, 2011 ("POTR") at present deals with a situation where there is a 'change in effective rate of tax'. The phrase has been defined to include a change in the portion of value on which tax is payable. Accordingly, three possible situations might get covered being, (i) change in the rate of service tax, (ii) change in the effective rate on account of any exemption and (iii) change in the portion of value on which service tax is payable by virtue of any abatement. Is a situation like the present i.e. where there is a change in the effective rate or portion of value on which tax is payable, covered by the Model GST Law? The answer might lie in Section 14of the Model GST Law which is to a great extent similar to Rule 4 of the POTR.

It may, however, be noted that Section 14 of the Model GST Law uses the phrase 'change in rate in tax' as against 'change in effective rate of tax', which is used under POTR.Also, the phrase 'change in rate of tax' has not been defined under the Model GST Law whereas, an inclusive definition of 'change in effective rate of tax' has been provided under the POTR.

Accordingly, the applicability of Section 14 in situations where there is a change in the effective rate per se or where there is a change in the value on which tax will be payable, might be disputed.

We may here take note that the Government is empowered under Section 15(5) to notify the value of certain supplies on the recommendation of the Council and which shall be determined in the prescribe d manner. A change in the value of a supply of service on account of a notification under Section 15(5) might not get covered by Section 14 of the Model GST Law for the reason that there is no change in the rate of tax.

Similarly, a notification issued under Section 11 of the Model GST Law might exempt generally or subject to conditions, specified services from the whole or any part of the tax. This would result in bringing down the effective rate of tax and not the scheduled rate itself. Will such a situation also get covered by the phrase 'change in rate of tax' as used under Section 14 is debatable.

We may also take note that Section 14 of the Model GST Law also applies to goods. Accordingly, in a case where there is a change in rate of tax of goods or services, Section 14 shall override Section 12 and Section 13 dealing with Time of Supply of Goods and Services, respectively and apply ex propriovigore.

It can accordingly be seen that clarity is required on whether the scope of Section 14 of the Model GST Law covers a situation wherein there is change in the effective rate of tax or only a situation wherein there is a change in rate of tax. It is expected that a definition (like that of 'change in effective rate of tax' under POTR) as to what 'change in rate of tax' means and includes, is incorporated so as to settle controversies and reduce the scope of litigation.