By Saurabh Singhal & Tushar Aggarwal, Lakshmikumaran & Sridharan
AS per the "Statement of Objects & Reasons" in the Constitutional Amendment (122 nd ) Bill, 2014 one of the primary objectives behind the introduction of GST is to enable seamless flow of input tax credit from one state to another, which would foster a common and seamless Indian market and contribute significantly to the growth of the economy. This seamless flow of credit between states is sought to be achieved by way of levy of IGST on all inter-state supply of goods/ services.
Under the present regime,taxes on inter-state supply of goods accrues to the originating State. Thus, taxes levied on inter-state supply is not available as credit to the receiver of goods, hindering inter-state movement of goods. However, under GST, this situation is sought to be tackled by levying IGST, which is accrues to Centre and is then allocated by the Centre to the State where the goods/services are consumed.By levying IGST, which is a summation of CGST and SGST, GST Regime seeks to provide seamless flow of input tax credit of centre and state taxes from one state to another.
As per the Draft IGST Act (as published on UP Government Website), a supply shall be deemed to be inter-state supply if the location of supplier and place of supply is in different state. In case of goods, place of supply generally is the location at which the goods are delivered to the receiver and in case of services, the POS is generally the location of service receiver. Further, there are specific rules for performance based and immovable property related activities. Say in case of goods assembled at site/ goods supplied on board a conveyance, place of supply is the assembly site/ or where goods are taken on board the conveyance. In case of service related to organization of events, the POS is the state where event is held. Therefore, as per Place of Supply provisions, there can be situations where the supplier and place of supply will be in the same state, but the receiver will be located in a different state. Such supplies will then be taxed as intra-state supply liable to CGST and SGST, SGST portion of which will not be available as credit to the receiver of goods located in different state, completely defying the basic premise of seamless flow of credit between states.
For illustration:-A Supplier of goods is located in Delhi, assembly site where the goods are to be assembled is also located in Delhi, and receiver of goods is located in Maharashtra. In this case, since the place of supplier and place of supply is in the same state, the supply will not qualify as inter-state supply, and will be liable to CGST and IGST. The receiver of goods though will get the credit of CGST, but will not be eligible for SGST credit.
Another illustration: Supplier is located in Delhi organizing an event in Delhi for service receiver located in Haryana. In this case, POS shall be in Delhi and accordingly the same will be intra-state supply liable to CGST and SGST. The receiver of service will not be eligible for SGST credit.
Though, GST as introduced by the Union Finance Minister claims to provide seamless flow of credit, it seems to achieve it halfheartedly so. Still there are supplies under GST Act where there is no seamless flow of credit from one state to another causing hindrance in free flow of trade. One possible solution to this could be amendment in the Place of Supply provisions. Place of Supply in case ofB2B supplies should be the location of receiver of goods/ services. This will allow seamless flow of ITC in all situations. Alternatively, IGST Act may provide that all supplies where location of supplier and receiver is in different state (irrespective of the place of supply)should be treated as inter-state supply chargeable to IGST.
It is imperative that all the States and Centre must address these issues and come to a common understanding that the place of supply is relevant for ascertaining the final consumption and not intermediate consumption thereby removing all the obstacle in allowing seamless flow of ITC across the states. Effective solution will lie in multilateral coordination by all the States and Centre, not in unilateral efforts by Centre or specific States.
(Saurabh Singhal is Senior Associate & Tushar Aggarwal is Principal Associate at Lakshmikumaran & Sridharan, New Delhi.)
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Sub: Cross utilisation of ITC credit in GST regime
The conclusions drawn by the authors appear to be based on improper understanding of the proposed GST Law and procedures.
Let us Start with the first illustration, wherein the supplier in Delhi, assembles goods in Delhi for a receiver in Maharashtra, is considered as intra-state supply and therefore discharges CGST & SGST and not IGST. The same could be availed and utilised by the receiver as per ITC credit norms proposed. Similarly in the second illustration, the receiver could avail credit of SGST and utilise the same for payment of SGST and IGST in that order, if it is B2B transaction. Therefore the hypothesis of the authors are based on non-understanding of the scheme of ITC credit, I feel.
However for the benefit of the readers, the ITC credit scheme proposed in GST regime includes allowing cross utilisation of ITC credit in certain order, which are, in a nutshell as follows: ITC of (i) IGST is allowed for payment of IGST, CGST & SGST in that order (ii) CGST is allowed for payment of CGST & SGST (iii) SGST is allowed for payment of SGST & IGST in that order. In cases of B2B transactions, provisions are made to seek refund of unutilised credit, subject to certain conditions. Such refund is also available in instances of Exports.The B2B transactions is a subset of B2C (consumer) transaction. The objective of the indirect taxes in GST regime is that the intermediary (B- Business) collects taxes from the ultimate consumers (C) only to the extent of value addition happening during his transactions and not beyond.
M G Kodandaram, NACEN, Bengaluru.
Posted by madihally kodandaram
Sub: GST-Wheter Guarantees Seamless Credit
Goods and Services Tax Act - Whether guarantees seamless ITC credit as avowed in the 122nd Constitutional Amendment Bill, 2014.
Apropos the Article of 10/06/2016, and the fearing of the authors of a break of ITC chain in case of supply of goods where the supplier and receiver are placed apart in different states, but the place of consumption of goods is the same as the state of supply appears is understandable. In that case the transaction cannot be considered as an inter-state transaction and the CGST and SGST paid do not get passed on to the receiver of goods located in another state. ( Based on IGST Laws relating to the place of supply provisions in UP GOVT Website referred to by the Authors. )
In my opinion, this aspect needs some fine tuning as rightly pointed out by the authors of the said article. But the underlying principle in this case is that the state where the goods and services are consumed should get the tax benefit of SGST. No doubt in the bargain, the axe falls on the receiver and the chain gets snapped all right. I am reminded of another situation where goods and services when supplied across the state in a direct B2C transaction , then the details have been sought to be captured separately while filing tax returns and the SGST equivalent contained in the IGST paid by the exporting state is credited to the state where the B2C transaction terminates in the hands of the direct consumer. I must think that even in the above instance, where the CGST and SGST are paid on the goods consumed in the same state as the supply but the taxes are borne by the receiver located in a different state, the receiver may be allowed to take credit of the CGST paid at his end as no cache is involved with reference to the CGST and SGST paid as in the case of an inter-state B2C transaction wherein the CGST and SGST are hidden away in the IGST paid at the time of export. Even in that case, the SGST portion cached in the IGST is later on released separately and credited to the consuming state where the direct inter-state B2C transaction ends.
Since in the subject instance cited by the authors, the CGST and SGST are not in bond but remain freely circulating, the CGST may be allowed to gravitate to the receiver and bond with him so as to travel further in the chain. As far the SGST paid by the receiver, well it can't take part in the credit chain as this portion is legitimately the share of the consuming State. To this extent, I think the receiver may be allowed Refund of the SGST in this case to complete the cycle of payment by the receiver. To my mind this will also ensure that the above feared impediment does not lead to an Input taxed situation which in turn results in cost addition to the extent of the SGST element to the ultimate consumers, which is not a desirable feature of a good GST. It is a well settled principle in GST that the Business does not retain any Taxes but merely passes on the same up till the end consumers seamlessly as the authors and as also others would wish perhaps.
K.Srinivasan
Service Tax,Chennai
Posted by Srinivasan Krishnamachari
Sub: GST-Wheter Guarantees Seamless Credit
Goods and Services Tax Act - Whether guarantees seamless ITC credit as avowed in the 122nd Constitutional Amendment Bill, 2014.
Apropos the Article of 10/06/2016, and the fearing of the authors of a break of ITC chain in case of supply of goods where the supplier and receiver are placed apart in different states, but the place of consumption of goods is the same as the state of supply appears is understandable. In that case the transaction cannot be considered as an inter-state transaction and the CGST and SGST paid do not get passed on to the receiver of goods located in another state. ( Based on IGST Laws relating to the place of supply provisions in UP GOVT Website referred to by the Authors. )
In my opinion, this aspect needs some fine tuning as rightly pointed out by the authors of the said article. But the underlying principle in this case is that the state where the goods and services are consumed should get the tax benefit of SGST. No doubt in the bargain, the axe falls on the receiver and the chain gets snapped all right. I am reminded of another situation where goods and services when supplied across the state in a direct B2C transaction , then the details have been sought to be captured separately while filing tax returns and the SGST equivalent contained in the IGST paid by the exporting state is credited to the state where the B2C transaction terminates in the hands of the direct consumer. I must think that even in the above instance, where the CGST and SGST are paid on the goods consumed in the same state as the supply but the taxes are borne by the receiver located in a different state, the receiver may be allowed to take credit of the CGST paid at his end as no cache is involved with reference to the CGST and SGST paid as in the case of an inter-state B2C transaction wherein the CGST and SGST are hidden away in the IGST paid at the time of export. Even in that case, the SGST portion cached in the IGST is later on released separately and credited to the consuming state where the direct inter-state B2C transaction ends.
Since in the subject instance cited by the authors, the CGST and SGST are not in bond but remain freely circulating, the CGST may be allowed to gravitate to the receiver and bond with him so as to travel further in the chain. As far the SGST paid by the receiver, well it can't take part in the credit chain as this portion is legitimately the share of the consuming State. To this extent, I think the receiver may be allowed Refund of the SGST in this case to complete the cycle of payment by the receiver. To my mind this will also ensure that the above feared impediment does not lead to an Input taxed situation which in turn results in cost addition to the extent of the SGST element to the ultimate consumers, which is not a desirable feature of a good GST. It is a well settled principle in GST that the Business does not retain any Taxes but merely passes on the same up till the end consumers seamlessly as the authors and as also others would wish perhaps.
K.Srinivasan
Service Tax,Chennai
Posted by Srinivasan Krishnamachari
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AS per the "Statement of Objects & Reasons" in the Constitutional Amendment (122 nd ) Bill, 2014 one of the primary objectives behind the introduction of GST is to enable seamless flow of input tax credit from one state to another, which would foster a common and seamless Indian market and contribute significantly to the growth of the economy. This seamless flow of credit between states is sought to be achieved by way of levy of IGST on all inter-state supply of goods/ services. 
