GST-What's it.....! What's in store ......!

Goods / Services - taxable and exempt

In this mail of the series, we will deal with Goods, Services, taxable and exempt, to highlight proposals of Model Law and to identify matters for representations to Council or and assess Business impact.

Goods [Section 2(48) Model GST Law (Model Law)]

Generally

In common parlance, any property which comes to market place for being purchased and sold is called goods.

How law deals with it?

Defined to mean:

  • Every kind of movable property
  • including:
    • Securities
    • growing crops, grass and things attached to or forming part of land which are agreed to be severed before supply
  • excluding:
    • actionable claim [as defined under Transfer of Property Act]
    • money [as defined by section 2(68) of Model Law]
    • intangible property [as defined by section 2(59) Model Law]

Thus, definition, more or less, corresponds to general understanding.

Service [Section 2(88) of Model Law]

Generally, it refers to an activity performed by a person to serve another person to satisfy his needs.

Defined to mean

Anything other than goods.

  • It includes:
    • Actionable claim
    • intangible property
  • It excludes:
    • money.
    • It can be said that Law tries to cover, as a service, anything other than goods.

Thus, it seems, anything other than money and immovable property is sought to be covered as goods or service under GST.

Presently, securities suffer "Securities Transaction Tax".

Actionable claim [Section 2(1) Model Law], being a mere claim to debt or beneficial interest, as such, is regarded as a contingent asset. Basis of taxation thereof does not seem to be very clear as basic transaction (giving rise to claim) may have suffered tax.

Present definition of "service" excludes 'actionable claim' from being a taxable service. Present definition of "service" excludes services rendered by an employee to his/her employer in the normal course of employment. This exclusion is provided by not considering employee as Taxable person under Model Law.

Business will now have to identify whether particular transaction relates to goods / services / both. It would be relevant to determine taxability, rate, time and place of supply, and the like (will discuss in future.)

Classification of Goods/services

By and large presently, goods /service exempt, not-taxable, taxable at concessional rate, etc are specifically provided /listed /described. Others, as such, are not listed (save for the purpose of excise or Custom Duty). Model Law or Other Communication are silent on the classification and principle thereof.

As such classification of goods/services into different categories will have their own share of administrative hassles. But it seems inevitable given the agreed GST structure.

Presently, no information is available about taxable goods and exempt goods or otherwise.

There is always a craving for exemption from taxes, in respect of various items of goods on account of its perceived importance.

However, any exemption [partially (including by way of concessional rate) or wholly] affects the perceived revenues and, therefore, increase rate of tax in respect of other items including items attracting concessional rate of tax.

Apart from that, in respect of totally exempt goods, no credit or exemption is available in respect of inputs and accordingly Tax is paid, even in respect of exempt goods, to the extent of tax paid on input services and goods. Hence, only final value addition may not suffer tax.

Ideally lesser exemptions lead to lower tax rates, tax buoyancy, lower prices, reduction in cost of tax administration, larger tax base, seamless tax credit chain and a balanced tax regime.

Thus, on Taxpayers as a class or even otherwise, as such, there is no significant impact or effect of exemption, since Tax attributable to exemption is recovered otherwise.

We leave these thoughts on goods, services, their classifications and taxability / exemption, with you for deliberations.

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