SEPTEMBER 13, 2016

By Ankit Shah, Senior Associate, Khaitan & Co.

INDIA achieved a significant milestone with the passing of the Constitutional (122 nd Amendment) Bill, 2014 for GST (GST Bill) on 8 August 2016. The Bill has now become an Act after receiving the Presidential assent on 08 September 2016 and is now the 101 st amendment to the Constitution.

GST is intended to create one single unified market by subsuming most of the indirect taxes, currently levied by both Centre and State resulting in a fragmented Indian economy. It will facilitate seamless transfer of goods and services across the supply chain in one of the largest markets in the world.

The Government has already released the ‘Model GST Law',containing comprehensive provisions with respect to the Central / State Goods and Services Tax (CGST / SGST) and the Integrated Goods and Services Tax (IGST), for public comments in June 2016. The actual Law is expected to evolve in several areas in the coming months' after consensus amongst various stakeholders.

The States have supported and reinforced the commitment of Government to expedite the GST roll out. This isevinced by rapid ratification of the GST Bill by the states.The required number has already ratified the GST bill within a month of its passage by Lower House. Further to the same, even the Presidential Assent has been received to make it an Act and bring it to force. With an aim to achieve the target date of 1 April 2017, the Government is striving to expedite the finalisation of GST law along with its procedural and administrative aspects.

There have been very interesting analysis and reads on various aspects of the Model Law. This article tries to highlight certain hiccups in the Place of Supply of Services provisions as contained in Model Law.

Determination of place of supply for services postulates significance like the Place of Provision of Service under the current Service tax era. Basis the place of supply of services, the levy of GST would be decided i.e. either CGST & SGST or IGST.

Cross utilisation between States GST (SGST) is still a big question in itself, there is nothing concrete in the Model Law which suggests the availability/non-availability of such cross utilisation. Therefore, the correct determination (of intra state or interstate) is all the more vital. More so as the Model law states that in case of payments made erroneously, there cannot be a set-off against the actual liability.The same needs to be paid and the assessee has to seek a refund of the amount paid erroneously.

In other words, if liability was on account of IGST and CGST and SGST has been paid erroneously' then in that case there is no set off available between such payments. The assessee will have to first discharge the liability towards IGST and seek refund of the CGST and SGST that was erroneously paid.

Below mentioned are some of the potential conflicts/issues arising out of Place of Supply of Services provisions under Model Law

6(4) "The place of supply of services, -

(a) ….

(b) by way of lodging accommodation by a hotel, inn, guest house, homestay, club or campsite, by whatever name called and including a house boat or any other vessel, or

(c) …..

(d) ….

shall be the location at which the immovable property or boat or vessel is located or intended to be located.”

6(5) The place of supply of restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery shall be the location where the services are actually performed .

Taking an example for the above rules take a case where a person (service provider) registered in Mumbai (Maharashtra) goes to Delhi for anofficial trip(client assignment) and during his trip, he stays at a Hotel in Delhi, does his lunch at a restaurant. Upon completing his work, books a return ticket from Delhi airport.The interplay of the above rules in the present examples has been discussed below.

In respect of hotel accommodation, the location of the supplier (i.e. the Hotel) would be Delhi (basis the definition provided in section 2(65) of the Model Law) and place of supply for such services would also be the same (per Section 6(5) of the Model law). In such a case, the said supply would be an intra state supply and would attract CGST+SGST (Delhi). The invoice would be raised and sent to Mumbai the place of business of the person. The SGST (Delhi) if not made available against SGST (Maharashtra) shall become a cost to the person.

Further to the above, in case restaurant services are availed at the hotel then the same issue would also arise in case of a restaurant. To put it in other words, every case where performance based services are availed and billed at the registered provider's detail, SGST credit will be a concern to the provider.

The onward journey of the person could also face similar issues in respect of flight tickets for return journey. In the above example, if the person gets his return ticket (from Delhi to Mumbai), the airline would charge CGST + SGST (Delhi) as the place of supply would be based on the place of embarkation (since the passenger is not a registered supplier under Delhi SGST) (Section 6(10)) .

On a concluding note , It can be said that the said rules are framed taking into consideration the Place of Provision of Services Rules under service tax. Service tax being a central levy did not have concern over CENVAT as it was not bound by states territorial jurisdiction. However, the same is significant in the GST regime since the levy now comprises of states share as well (SGST).

It would be prudent that the Board examines such cases where services are suffering from SGST cost and come up with the solution soon. This would also retain the main purpose of introduction of GST i.e. seamless credit and removing cascading effect of taxes.