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Among some of the issues
that are of concern to industry is treatment of stock transfers. Many companies
have multiple warehouses in various states, where the goods are stock
transferred from the factories for onward sales. At present, these stock
transfers are not subjected to any sales tax/value added tax (Vat).
It is not clear whether these transfers would be subjected to GST. If not, the
businesses would need to claim a refund of input taxes in the originating state,
while paying tax in the destination state. This is obviously not a desirable
situation.
If such transactions are taxable, the government would need to prescribe special
valuation principles (for instance, cost plus, wholesale price and MRP less
abatement) for determining taxable value in case of such transactions.
Similarly, there is no clarity on treatment of other non-sale transactions (such
as job worker, goods returned for defect and so on) for which a special
valuation regime (like in case of stock transfer) would need to be carved out.
The second area of concern is area-based incentives. The Centre, with a view to
facilitating industrial growth in privileged states, has granted duty
benefits/concessions to industrial units established in specific areas. State
governments have also extended certain tax/duty benefits/concessions to such
industrial units. These include Jammu and Kashmir, Himachal Pradesh, Uttarakhand
and so on.
The key benefits extended include Cenvat (central value added tax) duty
exemption or refund of Cenvat duty to units set up in specified areas, subject
to fulfillment of stipulated conditions.
The discussion paper proposes continuation of such tax exemptions/ remissions
related to the special industrial area schemes up to legitimate expiry time,
through a refund mechanism. However, this would need careful analysis to ensure
that the existing benefits available to the businesses are not diluted. For
instance, it needs to be articulated as to how the quantum of refund would be
worked out. This is not so much of an issue today, as most products are
subjected to excise duty on the basis MRP. However, the present MRP regime is
likely to be done away with in the GST regime.
Any dilution of the current benefit would adversely impact the businesses having
substantial investment in these states.
The third area of concern is the rule on point of levy and place of supply. The
indirect tax regime prevailing in India entails multiple points of levy. For
instance, excise duty is levied on the manufacture of goods even though it is
payable at the time the goods are removed from the factory. Service tax is
levied on the provision of taxable services but payable on receipt of
consideration (including advances); while for other levies such as Vat, the
taxable event is not linked to the receipt of consideration but to transfer of
title. It is likely that goods and services would be taxed under GST based on
different place of supply of rules.
For services, the relevant criteria might be the actual place of consumption or
the billing address on the invoice where the services are delivered. Would this
mean that services such as repairs, which are now taxable on the basis of place
of performance, would also be governed by the above criteria, or would place of
performance continue to be the criteria for such services? Also, there may be
special rules for certain services, such as telecom, transportation and so on.
This is an area, where India would need to place reliance on the place of supply
rules applicable in the European Union and counties such as Australia, which has
implemented GST recently.
The distinction between goods and services is of concern, too. While most GST
provisions would be common for goods & services, some differences cannot be
ruled out. For instance, GST may entail a multiple rate structure for goods and
a single rate for services, as proposed in the discussion paper.
Further, there may also be different place of supply rules for governing situs
of goods & services. In this regard, the government must ensure that the GST
legislation contains comprehensive definitions of ‘goods’ and ‘services’ to
determine the place of their respective supplies and also to minimise the
possibility of jurisdictional disputes among various states.
This would especially gain prominence in cases of composite contracts,
intangibles or software (pre-loaded or stand alone), since such supplies contain
elements of goods & services. The other aspects that deserve special attention
include adequate transition provisions, appropriate tax administration avoiding
the need to have multiple touchpoints with the authorities, uniformity in laws
at the state level, robust dispute resolution mechanism and so on.
One would expect that the all the stakeholders would examine these issues in
detail and attempt to arrive at a consensus before plunging into GST. After all,
history will not judge us by the speed of tax reforms, and if a choice has to be
made between the timing and the design, the choice should always be the latter.
Source:
mydigitalfc.com, India, dated
18/01/2010
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