Goods & Service Tax Continued……

Published On - January 2, 2015

admin GST

Goods and Service Tax Continued……… )
In the construction sector, there are several contractors operating in multiple states. As a result there could be several transfers which normally take place between one site to another. Presently most of such transfers take place under the branch transfer route. However as far as GST is concerned, there is no clarity on Branch Transfers and supply to self. GST is levied by Centre/State through a separate statute on all transactions of goods and services made for a consideration.
If we analyse the current scenario, in Service tax definition it is specifically mentioned that Service tax will be levied on services rendered for another person. In case of VAT, the tax is levied only when the property is transferred to another person hence, intra-firm transfer is not covered in tax levy.  But under GST, ‘all transactions’ includes any intra-firm transfers also. Hence, it would be a negative aspect of GST implementations. However tax planning on situs of sale can be done. In case of an organization having branches all over country, it would be feasible now to plan the branch on which payment booking should be done in case of works contract service as no Input credit loss or additional procedural requirement in form of CST compliance would required to be made. Hence, situs of sale can be used as a tool for tax planning.
Raodmap to GST – To implement GST, full restructuring of present tax system needs to be done. We can have a better picture of it with the help of following chart –
v  How exactly GST would work..?
As GST will involve three elements –

  1. CGST – Central Goods and Service tax
  2. SGST – State Goods and Service tax
  3. IGST – Integrated goods and service tax

Lets understand the credit mechainism in brief –

  • CGST can be set off against CGST
  • SGST can be set off against SGST
  • CGST cannot be used for set off against SGST and vice versa.

But IGST credit will be allowed against SGST. Lets take an illustration for the same –

  • Maharashtra seller selling to Karnataka buyer for Rs.1,00,000/-. IGST payable assuming an 8% rate is Rs.8,000/-. Rs.8,000/- can be paid by adjusting

–     Inter-State purchases (IGST) Rs.3,000/- / Local purchases (CGST) Rs.1,500/- / Local purchases (SGST) Rs.1,500/-

  • Since dealer has used SGST of Maharashtra to the extent of Rs.1,500/-, Centre has to transfer Rs.1,500/- to Maharashtra Government. IGST of Rs.8,000/- is availed as credit by Karnataka buyer. Karnataka dealer sells the goods at Rs.2,00,000/- attracting CGST of say Rs.16,000/- and SGST of Rs.16,000/-.  If IGST of Rs.8,000/- is used to pay the SGST then Karnataka Government has to transfer Rs.8,000/- to the Centre.