Is concessional rate of GST an Exempt Supply?
AUGUST 30, 2018
By Lakshmi Ratna Kancherla
IN this article, the author attempts to dwell on the scope of exempt supply vis-à-vis the condition specified in the notification pertaining to rate of services under the GST Law.
Under the Goods and Services Tax Law, a lower rate of GST has been specified for services under the Notifications subject to the condition that the input tax charged on the goods and services used in supplying the said service has not been taken.
Clause (iv) of the Explanation appearing against Sr. no. 4 in the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017/Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017 clarifies the meaning of the condition stipulated which is paraphrased below:
- Credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and
- The credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of Section 17(2) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as "CGST Act") and the rules made thereunder
- Hence, the registered person needs to comply with the said conditions in order to discharge GST at a concessional rate (5%/12%)
On a perusal of the above what emerges is that, the concessional rate of tax is applicable to the registered person only if the credit exclusively used in supplying such service and the common credit attributable to said service is not taken.
In effect, the said condition treats the supplies with concessional rate of duty as an exempt supply.
Scope of Exempt Supply under GST Law
The following supply of goods/services/both are covered under the definition of exempt supply under Section 2(47) -
- Supplies attract nil rate of tax or
- Supplies may be wholly exempt from tax under Section 11/Section 6 of the Integrated Goods and Services Tax Act, and
- Includes non-taxable supply
A perusal of the aforementioned definition indicates that supply of goods at a concessional rate does not mean that the activity is an exempt supply . It is pertinent to note that the definition under the GST Law is different from the definition under the erstwhile law which specifically provided that among others, exempted service under Rule 2(e) of the CENVAT Credit Rules, 2004 includes taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service is taken.
Flipside
Considering the fact, that the definition of exempt supply under the GST Law, does not deem such conditional supplies as an exempt supply, the notification cannot impose a condition that the registered person is required to reverse the common credit as well.
The notification appears to cover those supplies under the scope of exempt supply which the statute itself does not cover.
The author is of the view that unless the definition of exempt supply is amended to include services supplied at the concessional rate the registered person cannot be compelled by way of a notification to reverse the common credit attributable to the output supply. Till such time the assessees will not be bound to reverse the credit attributable to the common input supplies.
It is urged that the CBIC issues a clarification at the earliest so as to avoid interpretational issues in this regard.
(The author is Advocate & Principal Associate, Lakshmikumaran & Sridharan, Bangalore & the views expressed are strictly personal.)
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