Goods and Service tax (GST) is the mile stone tax reform of India at present. It is on its way to implementation. GST bill is a crucial issue, as such it is important to understand the various methods proposed in it.
The present situation of interstate transactions:
The power to levy Sales Tax on Inter State Transactions at present vests with the Central Government in India. The power to levy Service Tax on Inter State Transactions also vests with the Central Government.
So now the State Governments have no role to play in case of Service Tax. Presently in India only the Central Government can levy Service Tax whether the Service is rendered within the country or beyond its boundaries.
Sales Tax is segregated between the Centre and States in case of Interstate Transactions. Only one Government can levy the Tax. No dual taxation is present.
Determinant Factors for Inter State Transactions:
A. Sale of Tangible Goods – It depends upon either movement of goods or the place where parties are located.
B. Sale of Intangible Goods – It depends upon where parties are located or where service is consumed.
C. Composite Transactions – It depends upon where service is consumed.
GST is levied either on destination or on consumption rule. Determination of the place of supply is important as tax accrues to the State where supplies take place.
Like all other countries, in India a set of Rules have been prescribed for determining the Place of Taxation or that of Supply.
These Rules will determine the place where the supply of goods or services took place and whether those were interstate or intrastate.
A Supply is taxable in a particular jurisdiction only if it is takes place in that jurisdiction.
For proper application of tax on interstate supply of goods and services, appropriate mechanism is required. A systematic approach is required to implement GST on interstate transactions.
Many models have been adopted by other countries to implement GST on interstate transactions. The Integrated Goods & Services Tax Model is the ideal model for India at present. The model envisages levy of GST by the Central Government on all transactions at the time of interstate taxable supplies.
Issues to be taken into account by the Government:
1. Provisions for determining whether an activity is a sale or service are required.
2. Specific rules are required to ascertain the consideration price of sale.
3. Provisions are required to allow set off of input tax between CGST and SGST to avoid the cascading effect of taxes.
4. To consider whether exemption of import sale and high seas sales under the provisions of section 5(2) of the CST Act should be continued.
5. To consider whether exemption to penultimate exports should be continued.
6. To consider whether exemption on subsequent sales under the provisions of section 6(2) of the CST Act will be continued?
7. Provisions are required for sale or purchase of goods that are declared to be of special importance in connection with interstate trade or commerce.
8. Rules are required for determination of value in case of transfer of goods to parties which are inter- related.
The above issues should be considered before implementing GST. Every aspect should be looked so that no consumer is penalized by any means. A ‘flawless’ GST of the federal structure would optimize efficiency and effectiveness in implementation of the system.