1. 3/7/20161 Goods and Service Tax: Challenge and Opportunities for Company Secretaries (Saturday, 13 February 2016) R.K. Khurana FCS, FCMA, EMIB, LLB Advocate Taxation and Corporate Laws Adviser Email: khurana02@gmail.comkhurana02@gmail.com Mobile No. 9868285999 Tel (011) 22779277 Northern India Regional Council of the Institute of Company Secretaries of India R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate

2. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 2 The presentation covers: 1.Present and Proposed Scheme of IndirectTaxation 2.GST–BenefitsandChallenges 3.Challenges in GST–Lesson from Present System 4.Road to GST-Milestones 5.Industry’ Expectations from GST 6.Features of Proposed GST 7.Illustration to Show-case Tax Benefit under GST 8.Features of Constitution Amendment Bill 9.IGST Model 10.Features of Place of Supply Rules 11.International Perspectivin GST 12.GST Planning

3. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 3 Present Structure of Indirect Tax. Nature of Tax Excise Duty Service Tax Customs Duty Sales Tax/VAT/ CST Entry tax/ Entertain ment Tax Authority for levy of Tax Entry No. 84, List I, Schedule VII Residuary Entry No. 97, List I, Schedule VII Entry No. 83, List I, Schedule VII Entry No. 54 of List II (VAT) and 92A of List I (CST) Entry No. 52 &62 List II, Schedule VII Taxable Event Manufact ure Provision of Service Import & Export Sale of goods Entertain ment & Entry of Goods

4. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 4 Proposed Structure of Indirect Tax. Intra-state taxable supply Excise and Service Tax will be known as CGST Local VAT & Other taxes will be known as SGST Interstate taxable supply CST will be replaced by Integrated GST (IGST) Approx. Sum Total of CGST and SGST Import from outside India Custom Duty In Place of CVD and SAD, IGST will be charged

5. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 5 Existing Central taxes under GST GST would replace the following taxes currently levied and collected by the Centre: 1.Central Excise duty 2.Duties of Excise (Medicinal and Toilet Preparations) 3.Additional Duties of Excise (Goods of Special Importance) 4.Additional Duties of Excise (Textiles and Textile Products) 5.Additional Duties of Customs (commonly known as CVD) 6.Special Additional Duty of Customs (SAD) 7.Service Tax 8.Cesses and surcharges insofar as far as they relate to supply of goods or services

6. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 6 Existing State taxes under GST State taxes that would be subsumed within the GST are: 1.State VAT/Sales tax 2.Central Sales Tax 3.Purchase Tax 4.Luxury Tax 5.Entry Tax (All forms) 6.Entertainment Tax (not levied by the local bodies) 7.Taxes on advertisements 8.Taxes on lotteries, betting and gambling 9.State cesses and surcharges insofar as far as they relate to supply of goods or services

7. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 7 Utilization of Input Tax Credit 1.Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST 2.In other words, the two streams of input tax credit (ITC) cannot be cross utilised, except in specified circumstances of inter-State supplies, for payment of IGST. 3.The credit would be permitted to be utilized in the following manner: 1.ITC of CGST allowed for payment of CGST; 2.ITC of SGST allowed for payment of SGST; 3.ITC of CGST allowed for payment of CGST & IGST in that order; 4.ITC of SGST allowed for payment of SGST & IGST in that order; 5.ITC of IGST allowed for payment of IGST, CGST & SGST in that order.

8. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 8 Utilization of Input Tax Credit 4.ITC of Additional Tax would not be permitted. 5.Accounts would be settled periodically between the Centre and the State to ensure that the credit of SGST used for payment of IGST is transferred by the Exporting State to the Centre. 6.Similarly the IGST used for payment of SGST would be transferred by the Centre to the Importing State 7.The laws, regulations and procedures for levy and collection of CGST and SGST would be harmonized to the extent possible.

9. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 9 Shortcomings in the Present Structure and need of GST. Shortcomings in the present structure Tax cascading Levy of Excise Duty on manufacturing point Complexity in determining Sales Vs Service Inability of States to levy tax on service Lack of uniformity in rules and rates Fixation of Situs- Local Vs Central Sales Interpretation al issues Narrow base Complexities in administration

10. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 10 Features of an Ideal GST 1.Destination based taxation 2.Should apply to all stages of value chain 3.Zero rating of export of goods and services 4.Provide seem-less credit at different stages of sale/supply of goods/services 5.Provide for minimum floor rates

11. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 11 Committees under GST Five Committees have been constituted by the Empowered Committee of State Finance Ministers (EC) to deal with the various aspects of work relating to the introduction of GST. The Committees are: 1.The Committee on the Problem of Dual Control, Threshold and Exemptions in GST Regime; 2.The Committee on Revenue Neutral Rates for State GST & Central GST and Place of Supply Rules (A Sub-Committee has been constituted to examine issues relating to the Place of Supply Rules);

12. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 12 Committees under GST 3.The Committee on IGST & GST on Imports (A Sub- Committee has been set up to examine issues pertaining to IGST model); 4.The Committee to examine Business Processes under GST Regime (Three Sub-Committees have been constituted to examine issues pertaining to Registration & Returns, Refunds and Payments); 5.The Committee to draft model GST Law (Three Sub-Committees have been constituted to draft various aspects of the model law);

13. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 13 Committees under GST 3.The Committee on IGST & GST on Imports (A Sub- Committee has been set up to examine issues pertaining to IGST model); 4.The Committee to examine Business Processes under GST Regime (Three Sub-Committees have been constituted to examine issues pertaining to Registration & Returns, Refunds and Payments); 5.The Committee to draft model GST Law (Three Sub-Committees have been constituted to draft various aspects of the model law);

14. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 14 Committees under GST 6.The first four Committees have submitted their final reports which have been approved by the Empowered Committee and are under consideration of the Government of India. 7.The three Sub-Committees constituted to draft model law have also submitted their reports to the main Committee where these three reports are being discussed for finalization. 8.The EC has asked the Committee on the Problem of Dual Control, Threshold and Exemptions in GST Regime to rework on the limits of threshold exemption and compounding threshold.

15. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 15 Committees under GST 9.The Reports on four business processes, viz. registration, return, payment and refunds have recently been put in public domain for comments and feedback of stakeholders. 10.Interactive workshops for trade and industry are being conducted at various places for educating them.

16. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 16 Goods and Service Tax Network 1.GSTN is a private company constituted under Section 25 of the Companies Act, 1956 has been set up by the Government. 2.GSTN would provide four front end services, namely registration, payment, refunds and return to taxpayers. 3.It will also assist some States with the development of back end modules. 4.GSTN has already appointed M/s Infosys as Manage Service Provider at a total project cost of around Rs 1380 crores for a period of five years.

17. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 17 Process of Registration under GST 1.Regn. To be done within 30 days. 2.PAN based 15 digits GSTIN to be allotted. 3.Gross Annual turnover all over the country will be considered for regn. Or compounding Scheme. 4.Compulsory registration for dealer of inter state sale or reverse charge cases. 5.Unique identification no. for UN Bodies and Govt. Deptt./ PSUs 6.The concept of ISD to continue for services. 7.Suo moto registration in Enforcement cases. 8.Multiple registration in same state allowed for Business Verticals.

18. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 18 Process of Registration 10.The scheme of TRP and Facilitation Centres to be started. 11.Compulsion to use DSC in case reqd. by any other law. 12.Application in GSTN and printed extract to be submitted to concerned tax authority within 30 days. 13.GSTN will communicate with applicant and concerned tax authority. 14.Approval or Rejection to be done within 3 working days otherwise it will be deemed approved by GSTN. 15.Risk profiling of assessees to be done by tax authority and input in GSTN.

19. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 19 Process of Payment 1.Online tax payments are required. 2.Bank payments are restricted to Rs. 10,000/- per challan. 3.Challan to be generated from GSTN which will have unique Common Portal identification no. (CPIN). 4.CPIN will remain valid for seven working days. 5.The system will be integrated with RBI system. 6.RBI will act as clearing house for Govt. 7.Cheque bouncing – System will bar such assessees from this facility.

20. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 20 Process of Refund 1.GSTN to be integrated with Customs deptt. 2.Refund application to be filed online. 3.Refund application to be made within time limit. (1 year as present). 4.Refund to be processed in a specified time limit. 5.Stress on online verification of information. 6.Pre and post audit of refunds to be carried out depending on amounts. 7.Provision of interest on delay in payment of refund.

21. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 21 Process of Registration 10.The scheme of TRP and Facilitation Centres to be started. 11.Compulsion to use DSC in case reqd. by any other law. 12.Application in GSTN and printed extract to be submitted to concerned tax authority within 30 days. 13.GSTN will communicate with applicant and concerned tax authority. 14.Approval or Rejection to be done within 3 working days otherwise it will be deemed approved by GSTN. 15.Risk profiling of assessees to be done by tax authority and input in GSTN.

22. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 22 Revenue Neutral Rate 1.The term revenue neutral rate (RNR) will refer to that single rate, which preserves revenue at desired (current) levels. 2.In practice, there will be a structure of rates, but for the sake of analytical clarity and precision it is appropriate to think of the RNR as a single rate. 3.It is a given single rate that gets converted into a whole rate structure, depending on policy choices about exemptions, what commodities to charge at a lower rate (if at all), and what to charge at a very high rate.

23. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 23 Revenue Neutral Rate 4.The RNR should be distinguished from the “standard” rate defined as that rate in a GST regime, which is applied to all goods and services whose taxation is not explicitly specified. 5.Typically, the majority of the base (i.e., majority of goods and services) will be taxed at the standard rate, although this is not always true, and indeed it is not true for the states under the current regime. 6.Against this background, the Committee drew a few important conclusions.

24. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 24 Revenue Neutral Rate 7.Identifying the exact RNR depends on a number of assumptions and imponderables; therefore, this task is as much soft judgement as hard science; and finally also because the prerogative of deciding the precise numbers will be that of the future GST Council, this Committee has chosen to recommend a range for the RNR rather than a specific rate. 8.For the same reason, the Committee has decided to recommend not one but a few conditional rate structures that depend on policy choices made on exemptions, and the taxation of certain commodities such as precious metals. 9.The summary of recommended options is provided in the table below.

25. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 25 Benefits of GST 1.The uniformity in tax rates and procedures across the country will lead to various benefits for the economy and the consumers. 2.Unified market - the amalgamation of various taxes into one will simplify the procedure and help in evolution of a common market at national level. 3.Increase in tax revenue is projected due to better compliance and broader tax base 4.Increase in exports due to cost effective production 5.The burden of tax on goods is expected to fall under GST leading to benefits to the consumers 6.The GDP is predicted to grow in the range of 0.9 – 1.7 percent annually

26. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 26 Salient features of 122 nd Constitutional Amendment 1.Insertion of new Article 246A conferring simultaneous power to the Union and the State legislatures to legislate on GST. 2.Tax on interstate supplies: Parliament has exclusive power to make laws with respect to goods and services tax where the supply takes place in the course of inter-State trade or commerce. 3.Apportionment of GST: GST collected on inter-State trade or commerce shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the GST Council

27. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 27 Constitutional Amendment: GST Council 1.The President shall, within sixty days from the date of commencement of the Constitutional Amendment Act, by order, constitute a Council to be called the GST Council. 2.The GST Council shall consist of the following members: i.The Union Finance Minister:- Chairperson; ii.The Union Minister of State in charge of Revenue or Finance – Member iii.The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government....................Members.

28. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 28 Constitutional Amendment: GST Council 1.The President shall, within sixty days from the date of commencement of the Constitutional Amendment Act, by order, constitute a Council to be called the GST Council. 2.The GST Council shall consist of the following members: i.The Union Finance Minister:- Chairperson; ii.The Union Minister of State in charge of Revenue or Finance – Member iii.The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government....................Members.

29. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 29 Powers of the GST Council The GST Council shall make recommendations to the Union and the States on— 1.The taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the GS Tax 2.The goods and services that may be subjected to, or exempted from the goods and services tax; 3.Model Goods and Services Tax Laws, principles of levy, apportionment of IGST and the principles that govern the place of supply;

30. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 30 Powers of the GST Council 4.The threshold limit of turnover below which goods and services may be exempted from goods and services tax; 5.The rates including floor rates with bands of goods and services tax; 6.Any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; 7.Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; 8.Any other matter relating to the goods and services tax, as the Council may decide.

31. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 31 Powers of the GST Council 9.One half of the total number of Members of the GST Council shall constitute the quorum at its meetings. 10.The GST Council shall determine the procedure in the performance of its functions. 11.Every decision of the GST Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely: i.The vote of the Central Government shall have a weightage of one-third of the total votes cast, and ii.The votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

32. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 32 Powers of the GST Council 12.No act or proceedings of the GST Council shall be invalid merely by reason of— i.Any vacancy in, or any defect in, the constitution of the Council; or ii.Any defect in the appointment of a person as a member of the Council; or iii.Any procedural irregularity of the Council not affecting the merits of the case. 13.The GST Council may decide about the modalities to resolve disputes arising out of its recommendation.

33. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 33 Exclusive Powers of the CG after GST 12.In the Seventh Schedule to the Constitution,— (a) in List I — Union List,— (i) for entry 84, the following entry shall be substituted, namely:— Duties of excise on the following goods manufactured or produced in India, namely:— i.Petroleum crude; ii.High speed diesel; iii.Motor spirit (commonly known as petrol); iv.Natural gas; v.Aviation turbine fuel; and vi.Tobacco and tobacco products.";

34. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 34 Exclusive Powers of the States after GST In List II — State List,— for entry 54, the following entry shall be substituted, namely:— Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.";

35. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 35 Constitutional Amendment: GST Council 1.Insertion of new Article 279A for the creation of a Goods & Services Tax Council, which will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister. 2.To do away with the concept of ‘declared goods of special importance’ under the Constitution.

36. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 36 Salient features of 122 nd Constitutional Amendment 1.Insertion of new Article 246A conferring simultaneous power to the Union and the State legislatures to legislate on GST. 2.Tax on interstate supplies: Parliament has exclusive power to make laws with respect to goods and services tax where the supply takes place in the course of inter-State trade or commerce. 3.Apportionment of GST: ‘ 269A. (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council 4.Insertion of new Article 279A for the creation of a Goods & Services Tax Council, which will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister. 5.To do away with the concept of ‘declared goods of special importance’ under the Constitution.

37. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 37 Salient features of 122 nd Constitutional Amendment 4.Central Taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (CVD) and Special Additional Duty of Customs (SAD), etc. will be subsumed in GST. 5.At the State level, Taxes like VAT/ Sales Tax, Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax and Luxury Tax, etc. would be subsumed in GST. 6.The Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years (The compensation will be on a tapering basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year).

38. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 38 Salient features of 122 nd Constitutional Amendment 7.All Goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST. 8.However, Petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. 9.The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to be levied in the interim period.

39. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 39 Salient features of 122 nd Constitutional Amendment 10Both Centre and States will simultaneously levy GST across the value chain. The Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. 11The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of Goods and Services. There will be seamless flow of input tax credit from one State to another. 12Proceeds of IGST will be apportioned among the States.

40. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 40 Salient features of 122 nd Constitutional Amendment 13.GST is a destination-based tax. All SGST on the final product will ordinarily accrue to the consuming State. 14.GST rates will be uniform across the Country. However, to give some fiscal autonomy to the Centre and States, there will a provision of a narrow tax band over and above the floor rates of CGST and SGST. 15.It is proposed to levy a non-vatable Additional Tax of not more than 1% on supply of goods in the course of inter-State trade or commerce for a period not exceeding 2 years, or further such period as recommended by the GST Council. This Additional Tax on supply of goods shall be assigned to the States from where such supplies originate.

41. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 41 GST: Benefits to Assessee 1.Reduction in multiplicity of taxes. 2.Mitigation of cascading/double taxation. 3.More efficient neutralization of taxes especially for exports. 4.Development of common national market. 5.Simpler tax regime- 6.Fewer rates and exemptions. 7.Conceptual clarity(Goods vs.Services).

42. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 42 GST: Benefits to Government 1.Simpler Tax system. 2.Broadening of Tax base. 3.Improved compliance & revenue collections (tax booster). 4.Efficient use of resources

43. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 43 GST: Emerging Role of Company Secretaries 1.Tracking GST development 2.Review of draft legislation and impact analysis 3.Industry Consultation for improvement in business process 4.Review of final legislation and impact analysis 5.Implementation assistance 6.Post implementation support 7.Tax Planning 8.Record Keeping 9.Departmental Audit

44. 3/7/2016R.K. Khurana, FCS, FCMA, EMIB, LLB, Advocate 44 Thank you very much. Have a a great learning. R.K. Khurana Advocate khurana02@gmail.com Mobile 9868285999 Tel (o11) 22779277