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28 March 2017

EY GST News Alert

Highlights of the GST Bills, 2017 introduced in Lok Sabha

Executive summary
This News Alert provides highlights of the Goods and Services Tax (GST) Bills, 2017
This Alert provides an introduced in the Lok Sabha on 27 March 2017.
insightful coverage of
news related to GST The Union Finance Minister, Mr. Arun Jaitley, tabled four GST Bills in the ongoing
and recent Budget session of the Parliament. The Bills introduced in the Lok Sabha include
developments that are Central GST (CGST), Integrated GST (IGST), Union Territory GST (UTGST) and the Bill
likely to impact trade. for Compensation to States.
It will act as a
summary to keep you The Bills were earlier cleared by the GST Council, followed by Union Cabinet
on top of the latest approval. According to media report, the GST Bills, although introduced as Money
GST news. For more Bills, shall be taken up for discussion in both the houses of the Parliament before
information, please their passage in the current session. The Business Advisory Committee of Lok Sabha
contact your EY will meet to decide on the duration of discussion on the Bills, which is likely to
advisor. commence on 29 March 2017.

The revised draft of the Model GST law, which was released in the public domain in
November 2016, has been split into CGST, SGST and UTGST Bills apart from IGST
Bill. The draft of the Model GST Law underwent further changes before being
introduced in the Parliament.

Some of the significant changes are contained in the definitions, levy of tax, input tax
credit, transitional provisions, zero rated supply etc. The list of exemption,
classification of goods and services, and machinery provisions including valuation
and other rules are yet to be notified.

Subsequent to the passage of Central GST Bills in the Parliament, states will take up
State GST Bills for clearance in the respective state legislative assemblies.
GST update The term drawback has been defined
and is same as under the current
Drawback Rules.
The Union Finance Minister, Mr. Arun
Jaitley, tabled four Central Goods and
The definition of the term government
Services Tax (GST) Bills, 2017 in the
has been restricted to mean only the
ongoing Budget session of Parliament.
Central Government under CGST.
The bills introduced in Lok Sabha include
Central GST (CGST), Integrated GST
Installations, structures and vessels in the
(IGST), Union Territory GST (UTGST) and
continental shelf of India and EEZ of India
the Bill for Compensation to States.
for the purpose of prospecting, extraction
or production and supply of mineral oil
The Bills were earlier cleared by the GST
and natural gas have been removed from
Council, followed by Union Cabinet
the definition of India.
approval. According to media report, the
GST Bills, although introduced as Money
State has been defined to include Union
Bills, shall be taken up for discussion in
Territories with legislature, i.e., Delhi and
both the houses of the Parliament before
their passage in the current session. The
Business Advisory Committee of the Lok
Union Territory means:
Sabha will decide on the duration of
(a) Andaman and Nicobar Islands
discussion on the Bills, which is likely to
(b) Lakshadweep
commence on 29 March 2017.
(c) Dadra and Nagar Haveli
(d) Daman and Diu
The revised draft of the Model GST Law,
(e) Chandigarh
which was released in the public domain
(f) Other territory
in November 2016, has been split into
CGST, SGST and UTGST Bills apart from
The term state has been defined to
IGST Bill. The draft of the Model GST Law
include Union Territories with legislature,
underwent further changes before being
i.e., Delhi and Puducherry.
introduced in the Parliament.
The term voucher referred to in the
The changes contained in the definitions,
levy of tax, input tax credit, transitional time of supply has been defined as under:
provisions, zero rated supply and other
provisions are highlighted below. Voucher means an instrument where
there is an obligation to accept it as a
consideration or part consideration for a
Key changes in CGST Bill, 2017
supply of goods or services or both and
where the goods or services or both to be
CGST Law shall apply to the whole of
supplied or the identities of their potential
India except the State of Jammu and
suppliers are either indicated on the
instrument itself or in related
documentation, including the terms and
Definitions conditions of use of such instrument.

Definition of Agriculturist has been In a bid to remove ambiguity, the

amended to cover an individual or any definition of works contract has been
Hindu Undivided Family cultivating land amended. It appears that only contracts
either through own labor or hired labor related to immovable property are to be
under individual or family supervision. considered as works contract.
Earlier, agriculturist referred any
person cultivating land. Apart from the aforesaid definitions,
there are several other new definitions,
The proviso dealing with deposit under which include appellate authority,
the definition of consideration has been authorised representative, competent
amended to exclude the words whether authority, family, manufacture and
refundable or not for the treatment of registered person.
deposit given in the course of supply.
Supply dealers from INR50 lakh to INR1 crore on
the recommendation of the Council.
As per Schedule I (dealing with supply
made without consideration) read with Tax rates for composite dealers are
section 7, gifts not exceeding INR50,000 prescribed as follows:
in value in a financial year by an employer
to an employee (considered as related For manufacturers 1% of turnover
parties) shall not be treated as supply of in state or turnover in Union
goods or services. Territory,
In case of composite supply involving
Schedule III (dealing with activities not food (restaurant services etc.) 2.5%
treated as goods or services) has of turnover
undergone the following changes: In case of other suppliers 0.5% of
Actionable claims other than
lottery, betting and gambling shall Time of supply
not be treated as supply of goods or
services. Time of supply of services shall be the
earliest of the following:
Services by foreign diplomatic
mission located in India shall not be When invoice is issued within the
treated as supply of service. prescribed period date of issue of
invoice or date of receipt of payment,
Constructed building (where entire whichever is earlier
consideration is received after
issuance of completion certificate) When invoice is not issued within the
and sale of land are not to be prescribed period date of provision
treated as supply of goods or of service or date of receipt of
services. payment, whichever is earlier

CGST is applicable on intra-state supplies In cases not covered above date on

goods or services except on supply of which the recipient shows the receipt
alcoholic liquor for human consumption. of services in the books of account.

The CGST rate cap has been increased Time of supply in case of addition in the
from 14% to 20%. value of supply by way of interest, late fee
or penalty for delayed payment of any
Central tax (i.e., CGST) will be levied on consideration shall be the date on which
supply of petroleum crude, high-speed supplier receives such addition in value.
diesel (HSD), petrol, natural gas and
aviation turbine fuel (ATF) from such date Input tax credit
as may be notified by the Government on
recommendation of the Council. Where the recipient fails to make payment
to the supplier of goods/services within
A registered person procuring taxable 180 days (this was earlier 3 months and
goods or services from an unregistered only for services) from the date of issue
person will be required to pay tax under of invoice, an amount equal to input tax
reverse charge basis. This amendment is credit (ITC) availed by the recipient shall
likely to have a massive impact on the be added to his output tax liability, along
compliance complexity for taxpayers as with interest.
also on the competitiveness of
unregistered entities. The recipient shall be entitled to re-avail
the ITC on subsequent payment to
Composition levy supplier. There is no provision for
claiming back the interest.
The Government may by notification
increase the threshold limit for composite
In addition to taxable supplies on which than INR200, subject to prescribed
reverse charge is applicable, the value of conditions. Earlier, the said limit was
exempt supply also includes transaction INR100 in case of bill of supply.
in securities, sale of land and constructed If a receipt voucher has been issued on
building for non-eligibility of ITC. receipt of advance payment for goods or
services but subsequently no supply is
The said provision would adversely impact made, the supplier is required to issue a
credit availment. refund voucher against such advance
In case of a banking company or financial
institution, including a non-banking A person liable to pay tax under reverse
financial institution, the restriction of 50% charge has to issue a payment voucher at
of ITC shall not apply in case of supplies the time of making payment to the
made between different registered units supplier.
within the same legal entity.
Accounts and records
In case of rent a cab, life insurance and
health insurance services, ITC can be Transporter, irrespective of whether he is
availed in case the person makes an registered or not, is required to maintain
outward taxable supply of the same records of consignor, consignee and other
category of goods or services. relevant details of goods as prescribed.
ITC will not be available on goods and Books of account and records shall be
services procured locally by non-resident required to be retained for 72 months
taxable person. from the due date of furnishing of annual
return instead of 60 months as per earlier
Plant and machinery for the purpose of draft.
ITC now excludes telecommunication
towers and pipelines laid outside the
factory premises. Consequentially, the
provisions allowing credit on telecom
Furnishing details of outward supplies will
towers and pipelines over a period of
not be allowed from days 11 to 15 of the
three years have been deleted.
month succeeding the relevant tax period.
Registration While furnishing the details of inward
supplies, details of imported goods on
Provisions earlier contained in Schedule V which IGST is payable under section 3 of
have been merged with the provisions of the Customs Tariff Act, 1975 are also to
Registration under Chapter VI. be furnished.
A person who makes a supply from the Return for a tax period will not be allowed
territorial waters of India shall obtain to be furnished if return for any previous
registration in the coastal state or Union tax period is not furnished.
Territory where the nearest point of the
appropriate base line is located.
Tax invoice Union Territory GST (UT tax) shall be first
utilized toward the payment of UT tax and
Specific categories of services in respect remaining amount may be utilized toward
of which tax invoice may not be issued the payment of IGST (integrated tax).
shall be notified by the Government on
the recommendation of the Council. This Central tax cannot be utilized toward the
is in addition to any other document payment of UT tax.
being treated as tax invoice.
Interest rate for delayed payment of tax is
There is no need to issue a tax invoice/bill capped at 18%.
of supply if the value of supply is less
Rate of interest in case of undue or excess days from date of receipt of application,
claim of input tax credit or undue or the rate of interest is capped at 9%.
excess reduction in output tax liability is
capped at 24%. Transitional provisions

TDS Additional conditions are prescribed for

carry forward of CENVAT credit as
The limit relating to applicability of TDS follows:
has been reduced from INR500,000 to
INR250,000. The person should have furnished
returns for a period of 6 consecutive
TDS provisions will not be applicable if the months immediately preceding the
location of supplier and place of supply is appointed date.
in a state or UT that is different from the
state or UT in which recipient is Credit should not relate to goods
registered. covered under any exemption
For transition of credit in respect of goods
E-commerce operators liable to collect tax held in stock, the condition of passing the
at source are required to furnish an benefit of such credit in the form of
annual statement containing details of reduced prices to the recipient has been
outward supplies effected through them removed. This condition has been made
prior to 31 December following the end of applicable only in case of person other
the financial year. than the manufacturer or supplier of
services (i.e., a trader of goods) who is
availing credit without the possession of
an invoice evidencing payment of duty.
The Government, on the recommendation
The earlier provision specifying the 6
of the Council, may notify supplies
months validity of provisional registration
pertaining to inverted duty structure
certificate has been removed.
where the refund of unutilized ITC will not
be available.
Key changes in IGST Bill, 2017
Suppliers availing duty drawback of the
IGST law shall extend to the whole of India
Central tax cannot claim refund of ITC.
except the State of Jammu and Kashmir.
The limit for claiming refund without
documentary evidence is reduced from IGST rate cap has been increased from
INR500,000 to INR200,000. 28% to 40%. Further, IGST shall not be
levied on alcoholic liquor on human
Refund of tax paid on all zero rated consumption.
supplies or on inputs or input services
used in making zero rated supplies will be IGST shall be levied on supply of
paid to the applicant and not credited to petroleum crude, HSD, petrol, natural gas
the fund. Earlier, this provision was and ATF from a date to be notified based
available only for exports and not all zero on recommendation of the Council.
rated supplies.
IGST shall be payable by the registered
The rate of interest in case of refunds in recipient of goods or services under the
specified cases is capped at 6%. reverse charge mechanism on taxable
purchases made from the unregistered
However, if a refund claim arising from an supplier.
order passed by the adjudicating
authority or the Appellate Supply of goods/services shall be treated
Authority/Tribunal or court, which has as supply in the course of inter-state
attained finality, is not paid within 60
trade, where the location of the supplier administrative and other provisions also
and the place of supply are in: apply to UTGST.

Two different states Transitional provisions are in line

Two different Union Territories with the provisions of the revised
A state and a Union Territory draft model GST law as pertaining to
As per Explanation 1 to section 8(2) of
IGST law, an establishment in a state or Key changes in Bill for Compensation to
Union Territory and any other
establishment being a business vertical
registered within that the state or Union
The base year revenue of states will
Territory shall be treated as
include any cess or surcharge or fee
establishments of distinct persons.
levied by states.
Where the location of the supplier is in
States will receive provisional
the territorial waters or the place of
compensation bi-monthly instead of
supply is in territorial waters, then the
quarterly from the Center for loss of
location of such supplier/place of supply
revenue from GST implementation.
shall be deemed to be in the coastal state
or Union Territory where the nearest
After the end of 5 years from the
point of the appropriate baseline is
implementation of GST, the residual
amount lying in the compensation fund
will be shared equally between the Center
There are no significant changes made in
and states.
provisions relating to place of supply of
goods and services.
The rate of cess on demerit goods for
providing compensation to states has
Registered supplier to SEZ unit/developer
been specified in the Bill.
(such supplies being treated as zero rated
supplies) shall be eligible to claim refund
under the following two options: Way forward

Upfront exemption of IGST on The list of exemption, classification of

supplies under bond or Letter of goods and service, and machinery
Undertaking and claiming refund of provisions including valuation and other
unutilized ITC, or rules are yet to be notified.
Pay IGST on supplies and claim refund
of the tax paid Subsequent to the passage of Central GST
Bills in the Parliament, states will take up
The above options were available only to State GST Bills for clearance in the
the exporter and has now been extended respective state legislative assemblies.
to supplies to SEZ unit/developer.
As per the office order issued by the
Central Board of Excise and Customs, the
UTGST Bill, 2017 Government has set up 10 working
groups to iron out sectoral issues faced by
Union Territory GST law has been newly trade and industry to ensure smooth
introduced. transition to GST. Sectors include
banking, telecom, IT/ITES, financial,
It shall extend to the whole of India except textile, oil and gas, gems and jewelry,
the state of Jammu and Kashmir. transport and logistics, and MSMEs.

Provisions of CGST in so far as they relate

to supply, composition levy, composite
and mixed supply, time and value of
supply, ITC, transitional provisions
relating to interest and penalty, and
The tabling of the bills in the Parliament
is an important milestone in the process
of implementation of GST.

The GST bills address several issues

arising from the revised draft of the
Model GST Law released in November
2016, as highlighted by the industry.

However, it cannot be denied that the

GST framework continues to be fairly
complex and the Government would need
to mitigate genuine concerns of the
industry. Therefore, a continuous,
sympathetic and transparent
engagement with trade and industry is

There are several additional challenges

that the taxpayer would need to handle,
the key ones being tax treatment on
transactions related to the state of
Jammu and Kashmir, and compliances in
relation to identification of procurements
from unregistered persons.

The proposed implementation date of 1

July 2017 now appears to be achievable
and it is important that businesses get
ready to embrace GST.
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