Draft Model GST Law (as Revised)

Following the Constitutional Amendment, State Ratification and assent of the Hon’ble President of India to the Goods and Services Tax Bill (GST Bill), officially ‘The Constitution (One Hundred and Twenty Second Amendment) Bill 2014′, the to be legislated Goods and Services Tax Act (GST Act) which is currently in a (Revised) Draft Model GST Law form, will be a landmark legislation on Indirect Taxation in India, as it seeks to reform, annex and consolidate almost all of the various State and Central laws on Indirect Taxation and impose a single (GST) value-added tax on the ‘supply’ of goods and services on the end-user or consumer of such supply i.e. a destination based consumption tax.


Dual Levy

The GST levy for supply of goods and services within a State (‘intra-State supply) will be in the form of a dual GST levy structure, with ‘Central GST’ (CGST) to be levied by Central Government and ‘State GST’ (SGST) levied by the concerned State, concurrently on the same taxable supply. For inter-State supply and import of such goods and services, the Central Government would levy and collect ‘Integrated GST’ (IGST).


GST Council and GST Rates

The CGST and SGST would be levied at rates to be jointly decided by the Central Government and State Governments. The GST rates would be notified on the recommendations of the GST Council, established under Article 279A of the Constitution of India.

The GST Council is the top decision-making body on GST and will have representation from the Central government as well as all the State Governments. The GST Council will be chaired by the Union Finance Minister with a State Finance Minister as Deputy Chairman. All the Ministers in charge of Finance or Taxation or any other Minister nominated by each State Government along with the Minister of State for Finance in charge of revenue at the centre are part of the Council.

The Goods and Services Tax Council shall make recommendations to the Union and the States on —

  • The taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax
  • The goods and services that may be subjected to, or exempted from the goods and services tax
  • Model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply
  • The threshold limit of turnover below which goods and services may be exempted from goods and services tax
  • The rates including floor rates with bands of goods and services tax etc.


Input Tax Credit (ITC)

To prevent a cascading effect of taxes being levied on previously paid taxes and thus causing an inflationary effect on the end prices of such goods and services, as is the prevailing situation, Input Tax Credit (ITC) for input (GST) tax paid at each stage of supply chain will be available at the subsequent stage of value addition and supply, making GST essentially a tax on ‘value addition’ at each such stage. The final consumer will bear only the GST charged by the last registered ‘dealer/supplier’ in the supply chain of the subject goods and/or services, with input tax set-offs taken by the various registered suppliers/dealers at all stages of supply chain leading to the final consumption.


Order of ITC Set-off

The amount of Input Tax Credit (ITC) on account of IGST available in the electronic credit ledger shall first be utilized towards payment of IGST and the amount remaining, if any, may be utilized towards the payment of CGST and SGST, in that order.

The amount of ITC on account of CGST available in the electronic credit ledger shall first be utilized towards payment of CGST and the amount remaining, if any, may be utilized towards the payment of IGST, and similar order of application shall apply for SGST.

The ITC on account of CGST and SGST shall not be utilized towards payment of the other.


Administrative and Compliance Benefits

From an administrative and compliance standpoint, a single GST tax will simplify such matters and bring the cost and complexity of compliance down for the registered dealers/suppliers etc. and provide for more free movement and sale of goods in a ‘national common market’. Further, with a single GST tax rate for goods and services across the country, GST will bring parity and certainty to the indirect tax burden to be borne by the end-consumer.


Taxes to be subsumed by GST

At the Central Government level, the following taxes shall be replaced by GST —

  • Central Excise Duty
  • Additional Excise Duty
  • Central Sales Tax (CST)
  • Service Tax
  • Additional Customs Duty (Countervailing Duty or CVD)
  • Special Additional Duty of Customs (SAD)

At the State Government level, the following taxes shall be replaced by GST —

  • State Value Added Tax/Sales Tax (VAT)
  • Entertainment Tax (other than the tax levied by the local bodies)
  • Octroi and Entry Tax
  • Purchase Tax
  • Luxury Tax
  • Taxes on lottery, betting and gambling
  • State Cesses and Surcharges


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Every person who is liable to be registered under Schedule V of the Draft Model GST Law (the Draft Act, as revised), is required to apply for registration in every State in which he/she/it is so liable, within 30 days from the date on which such liability is incurred.

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The ‘revised’ Draft Model GST Law and Draft IGST Law contain various concepts, terms and definitions, an understanding of which is crucial to determine the extent (if at all) of the application of the said laws to various persons and their corresponding rights, duties and obligations thereunder, as and when these draft laws are legislated into effective law by the concerned Central and State legislative bodies.

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To reduce the burden of compliance and provide incentives to small businesses etc. supplying taxable goods, the Draft Model GST Law (the Draft Law as revised) through section 9 there under, offers the ‘Composition Levy‘ (the Levy) as an option.

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For most Startups and even established or traditional business/service models, e-commerce is quickly becoming a default mode of transacting business or providing services. The substituted definitions for ‘electronic commerce’ and ‘electronic commerce operator’ in the revised Draft Model GST Law when read with the definition of Supply under section 3 and/or TCS obligations as well those under section 8(4) for notified categories of services, the GST net seems to have been cast quite wide for e-commerce business.

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Chapter XIII and section 55 of the Draft Act deals exclusively with the concept of ‘job work’ and the ‘special procedure’ for removal of goods for such purposes. Under this provision, a registered ‘taxable person’ (referred to in the said section as the “principal”) may (under intimation and subject to prescribed conditions, if any) send any inputs and/or capital goods, without the payment of (GST) tax, to a job worker for job-work (from there subsequently may be sent to another job worker etc).

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Chapter VIII of the Draft Model GST Law (the Draft Law) lists the various provisions on GST ‘Returns’ for both intra-State supply (CGST/SGST) and inter-State supply (IGST under Model Draft IGST Law) of goods and services. The common portal e-Forms for furnishing such returns (and details) and procedure for executing the same is detailed in the Draft Return Rules and Draft Return Formats.

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