Additional Tax upto 1% on Inter State Supply of goods

  • Additional tax not exceeding 1% on inter-state transfer of goods

    Goods and Service Tax is a comprehensive tax on supply of goods and services or both in India to replace number of indirect taxes at the central level and the state level.  There is a levy of not exceeding 1% additional levy on interstate trade or commerce.  This additional levy is not there in the first constitutional amendment bill introduced by the UPA government as it has lapsed before taking up for discussions. After the NDA came to power, the things started moving and as part of confidence building measure, the FM has released part of the funds for compensating the loss of revenue on account of reduction of central sales tax which was pending for years. Also to bring the states on board has accepted the proposal of having this new tax.

    In the new constitutional amendment bill “THE CONSTITUTION (ONE HUNDRED AND TWENTY-SECOND AMENDMENT) BILL, 2014” on GST introduced by the current government has added the clause under point 18


    18. (1) An additional tax on supply of goods, not exceeding one per cent. in the course of inter-State trade or commerce shall, notwithstanding anything contained in clause (1) of article 269A, be levied and collected by the Government of India for a period of two years or such other period as the Goods and Services Tax Council may recommend, and such tax shall be assigned to the States in the manner provided in clause (2).

    (2) The net proceeds of additional tax on supply of goods in any financial year, except the proceeds attributable to the Union territories, shall not form part of the Consolidated Fund of India and be deemed to have been assigned to the States from where the supply originates.

    (3) The Government of India may, where it considers necessary in the public interest, exempt such goods from the levy of tax under clause (1).

    (4) Parliament may, by law, formulate the principles for determining the place of origin from where supply of goods take place in the course of inter-State trade or commerce.

     Un Quote

     First lets we go into the jurisprudence for the levy of charging additional tax not exceeding 1% by state of origin in the interstate transactions. Under GST, the taxes will be based on destination principle unlike the current principle of origin based. In the current mechanism the state from where the good are shipped / sells will get the CST amount from the center. Now under GST, the states which purchases / consumes the goods will get the benefit of Integrated Goods and Service Tax (IGST). Many states have expressed fear of losing revenue on moving to new principle of taxation as these states where enjoying currently the central sales tax levied on such transactions. In order to bring all the manufacturing states on board for early adoption of GST in India, the Finance Minister Shir Arun Jaitely has agreed to this additional tax proposed by the Gujarat and Maharashtra, even though this is against the principle of GST.

     But in the media lot of fears have been expressed by eminent persons for this additional tax. They have concluded and expressed that during the inter-state transfer of goods, if the goods move through four different states, then this levy of up to 1% is to be paid four times. Looks like this is again an interpretation issue  unlike any tax laws in India. This fear or understanding is totally baseless as the second point clearly states that the originating states gets the additional levy of 1% and also it clearly states that the principles for determining on the place of origin will be announced in the due course. This will be true only in the cases where the manufacturer does not have a clear plan / strategy for storage of goods in different states and keeps moving from one state to another based on demand for the goods. If the goods are moved four / five times, this additional levy of 1% is applicable. But again we need to wait for the exact rules before we conclude something and as professional we should avoid spreading wrong information.

    The same is clearly explained in the Statement of Objects and Reasons of “THE CONSTITUTION (ONE HUNDRED AND TWENTY-SECOND AMENDMENT) BILL, 2014

     (e) levy of an additional tax on supply of goods, not exceeding one per cent  in the course of inter-State trade or commerce to be collected by the Government of India for a period of two years, and assigned to the States from where the supply originates;

    For the time being we can conclude that this additional levy will not be charged through all the states when goods move different states in the inter-state sales.

    With this clause only the Constitutional Amendment bill was passed in Loksabha and when the same was introduced in Rajya Sabha, it was referred to the Select Committee. Based on the feedback the Select Committee has recommended the additional tax to be removed for the following reasons

  • Center will be compensating the states 100% for the first five years on revenue loss for states on account of implementing GST and this clause has been incorporated in the Bill bases on the Select Committees recommendations.
  • It would be cascading effect as the word from manufacturing states is not mentioned during inter-state supply of goods.
To overcome this fear, the Central Government has added the clause “Supply: “All forms of supply made for a consideration”.  This means that additional tax upto 1% will not be applicable in case of branch / stock transfers where consideration is not received as goods are being transported from the same entity and received in the same entity.
The select committee report can be accessed from here
Ideally as the Center has agreed to compensate the sates for the revenue loss for the first five years in the bill itself, additional tax can be dropped but if we see from the Central Government’s view it does not want to burden it self with the additional cash flows.
There should not be any fears on this for the following reasons
  • it is applicable only on supply of goods and not services
  • it is applicable only in case where consideration is received
  • it is applicable only for first two years

Any views or opinions represented in this section are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

Views on Joint Committee on Business Process for GST – Registration Number

Goods and Service Tax is a tax to be levied on supply of goods and services in India and it is in discussion for almost a decade now.  In the current taxation we have different laws for supply of goods and services this gives lot of room for confusion and high cost in compliance from a business house perspective and from government perspective also.  Across the globe in about 160+ counties GST has been introduced and it is also known as Value Added Tax in some countries.

During the last one year on wards there is lot of buzz or activity on the GST front in India.  In the second week of October 2015, the joint committee has released documents on business process

  • Registration
  • Payment Process
  • Refund Process
  • Returns

This blog covers on all the above topics in different sections. First we will review the business process document on the Registration titled by empowered committee as “GST Registration”.

Registration Number is key to any taxation as it helps in tracking of all the supplies i.e sales of goods or services, helps in taking the input tax credit, helps the tax authorities in determining the tax collection to sales, reconciliation between the tax collected and input tax claimed by the business houses. In the current tax regime, the business house is required to have registration numbers from multiple tax authorities like ECC number from the Central Excise, Service Tax Registration Number from the Service Tax Department, TIN and CST Registration number from the State Tax Authorities, IEC number from the Director General of Foreign Trade etc. This is tedious process and more over the thresholds for obtaining these registration numbers is also different. This adds to the complexity and the compliance cost. In the proposed GST, there will be only one number replacing most of the registration numbers. In the proposed GST regime, GST registration number will be termed as GSTIN i.e Goods and Service Taxpayer Identification Number.

Who has to obtain GSTIN

  • Any person who supplies goods and services and has turnover above the threshold limit
  • Who wants to collect and take credit of the GST
  • Who has interstate supply of goods or services
  • It is also called UID any buyer wants to refund of the taxes paid like UN Bodies / Government authorities / PSU’s

If an organization has breached / crossed the prescribed threshold, the person has to file for GSTIN registration number within 30 days. The applicant or the person who is filing for the registration number is eligible for claiming the input tax credit from the date of filing of the application for GSTIN.

A person can have GSTIN if he opts for compounding scheme, the threshold limit for the compounding scheme will be in the GST Law and the tax payer will not be allowed to take credit or collect GST.

A person can take GSTIN voluntarily and this will ensure that the tax payers is in credit chain even before he crosses the prescribed turnover limit.

Format of GSTIN

According to the Business Process document issued for GST on registration, the registration number is based on PAN similar to the current Excise Control Code ( ECC ) or Service Tax Registration Number. It is being proposed to be 15 digit number.

Registration number format

The first two digits, determine the state in which the GSTIN in being obtained, the list of the states is based on 2011 Indian Census. Under this each state will be allocated a two digit number.

Next 10 digits are PAN number of the entity issued by the Income Tax Department.

Thirteenth digit is alpaha numeric and it is based on the users requirement to get registration based on the business vertical. There can be 35 sequences maximum for this 1-9 numbers and alphabets a – z . If the tax payer is going for a single registration then it will be 1 in the thirteenth field but if he goes for more than one registration like one two business vertical say for example one for consumer durables and another for automobiles then the second one will be having 2 in the thirteenth number and the third registration number will be having 3 in the thirteenth field.

14th digit is a being reserved by the GSTN for the future use and the 15th digit is check digit.

 How to get GSTIN

GSTIN can be obtained in the following manner

  1. Directly applying from the GST Common Portal
  2. Tax Return Preparer (TRP)
  3. Facilitation Center

The GST Common Portal will be setup by the Goods and Service Tax Network (GSTN) and it will be integrated with the IT Systems of the State and Central Governments.  The final decision will be taken by the GST Law drafting committee on the TRP and FC centers.

There is no restriction on the number of applications being submitted by the taxable person, this facility is being provided so that if any taxable person has presence in more than on state, can file the application for registration numbers in one go.

The process of obtaining registration number is simple, the tax payer has to submit all the documents along with the application form. Scanned copies of the documents have to be submitted along with application online.  Once the documents are submitted a confirmation mail is sent and based on the confirmation Acknowledgement number will be generated. Once the application is approved, GSTIN will be issued along with the login credentials to the mail id of the authorized person.

Documents to be submitted

The following documents have to be submitted along with the filing of the application online

  • Constitution of business
  • Details of principal place of business
  • Details of bank accounts
  • Details of authorized signatory
  • Photographs of authorized signatory


Type of Registration forms

There are different application forms for the GSTIN based on the nature of activity.

  • Application for Registration under Goods and Service Tax
  • Application for surrender of Registration under Goods and Service Tax
  • Application to opt out of composition scheme
  • Application for withdrawal from Composition Scheme
  • Application for amendments after registration

Open Items

  1. State Code for Registration Number –     This does not have any direct impact on the end user but on the tax distribution between the center and the states. As per the business process document, the list of states to   be considered is from the 2011 Census data. By that time there was no bifurcation  of the Combined State of Andhra Pradesh, then how the fund distribution is going to take between the states Telangana and AP as we are talking about destination principle for GST.
  1. State Code for Registration Number – business impact – If a registered person sells goods from Hyderabad to Vijayawada which are falling under two different states, as per the GST Registration  document  the state code is same, is IGST applicable on this transaction or not?
  1. AS 17 for registration number –   There is point in the registration number which says based on the line of business registration number can be obtained with a maximum combination of 35. But what is the     real     usage of it when it comes to the registration number? Such process is not available across the globe even in EU where we call it is as VAT, which is in place for more     than 20     years? How is the same going to be mapped or configured in the accounting softwares? What are the guide lines for this? Another question is as per AS 17, in segment reporting if the turnover is more than 10% then only it has to be reported. Assuming the turnover falls below 10% after two years, still the registration number by segment is applicable or not? Can it be merged with other registration numbers?
  1. Registration Numbers for different states –     As per the document if the entity is having presence in multiple states, registration number has to be obtained in the state where the goods or services being sold. Say for     Example if Company A is selling goods from Hyderabad to Mumbai, Delhi, Bangalore etc A tax invoice has to be issued and which must be accompanied along with the     goods.     Now on the tax invoice which registration number of the Company A is to be printed is it State from where the shipment is taking place or of the state where the     goods are     being shipped? Or is it that when I have dispatches from those states, then i need to print the registration number of the state along with the generic registration number?
  1. Date of application of Registration – In the document it is mentioned that the date of filing of the application for registration should be considered for the Input Tax Credit. Logically or legally how can the credit be     availed when there is no registration number? Is the returns software capable of handling such requirements, how will the system know about the date of application for     registration? I feel it would create more complexity in the whole process. Assume a buyer take the credit based on the date of application of the seller but latter the     registration is rejected by the tax authorities, what happens to the credit taken by the buyer?  Assuming that the returns software is prepared in such an intelligent way, will     the credit gets rejected in the subsequent month?
  1. Date on which liability to pay tax arises – If we see the registration form given in the Annexure III, the point # 8 talks about this? Under this does the user has a flexibility to determine the date on his own? If yes how     can the matching of records happen for the credit to be availed only based on the sellers payment? Or is it a common date, if it is common date, then why do we need to capture and show this? Or are we talking about for SGST, which is state specific, there can be different dates? If yes is not contradicting the basic principle of having common tax structure and process?
  1. Input Service Distributor – Say for example Company A is located in Pune and it is doing centralized procurement for all its offices in India and bills are raised on Pune Office. The Services are delivered        in Hyderabad, Chennai & Delhi etc. The service provider is based in Mumbai, since Pune and Mumbai are in the same state, there will be no IGST applicable but the     services        are delivered in different parts of the country? How input service is to be transferred to other offices as they are outside the State of Maharashtra? Is IGST applicable as services being delivered in different states? The place of supply rules must address all such requirements.
  1. Migration of the existing registration numbers – Is this required as i see lot of difference in the data elements captured between the states for VAT and Excise or Service Tax? Can data be migrated from different servers to a     single databases? How pratical is this as the document itself says some data is missing? This is going to open a can of worms. The government should desist for such a     process as it is a onetime activity and they should ask for fresh applications and can validate the new applications with existing data available to see all entities have been registered under GST.

Any views or opinions represented in this section are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.