The government may soon announce that integrated goods and services tax (IGST) will be imposed on ex-factory sales which happen in one state and the buying company is located in another state. Also, the next GST Council meeting, slated for September, may take up the issue of double taxation for goods imported on the basis of cost, insurance and freight (CIF).
These issues were also raised by the industry with Finance Minister Piyush Goyal recently.
Since GST is destination-based, tax is imposed in the state where the goods are bought. But, if a buyer, say in Gujarat, decides to buy goods from the seller's factory in Maharashtra, it becomes a complicated matter whether the tax will be imposed in Maharashtra or Gujarat. The government is likely to say that IGST will be imposed in such a situation, sources said. A clarification might come in place of supply rules under GST Acts, they added. Abhishek Jain, partner, EY, said that the issue has been under discussion for quite some time among legal and industry experts. "A clarity is required, so that tax positions are aligned across businesses," he said.
The issue of double taxation was raised after an order by the Authority for Advance Rulings (AAR), Uttarakhand. The AAR had ruled that the importer will have to pay the IGST on CIF value and also on the ocean freight component.
The issue before the AAR was whether the importer will have to pay the IGST on freight value, on the reverse charge mechanism (RCM), when the service provider and service recipient are outside India. Generally, the service provider has to submit the GST to the government, but under the RCM the buyer will have to do it.
While generally this issue would affect cash flow situation of importing companies, the worst-affected would be those importing raw materials for the goods exempted under GST because they will not get input tax credit as well. Say those importing power equipment will not get the credit since power is exempted from GST.
Under CIF, sellers assume responsibilities till goods are shipped to a particular destination or buyer, they are not responsible once the goods are shipped. In this case as well, the worst affected are importers of raw material for those goods which are exempted from GST.
Jain said to avoid litigation and levying of a dual GST, under Customs and GST laws, authorities should consider issuing an exemption under either law to subside additional tax costs for the excluded and exempt sectors.
Industrialists also raised the issue of GST on input services in case of inverted duty structure. The July 27 GST Council meeting has allowed input tax credit for goods where final goods has less GST rate than its inputs. The industry also demanded that credit be given on tax paid on services inputs in these items. However, the government rejected that demand.