GST Imbroglio- NIL, ZERO, Exempted and Non GST Supplies

GST Imbroglio- NIL, ZERO, Exempted and Non GST Supplies


Introduction
1. Goods and services Tax Act is meant to levy tax on supply of taxable goods or services or both in a given case. The Central Goods and Services Act, 2017 defines taxable supply as well as non-taxable supply in inverse manner as under:
2(108) "taxable supply" means a supply of goods or services or both which is leviable to tax under this Act;
2(78) "non-taxable supply" means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;
Section 9, being the charging section, further provides for a levy of tax on all supplies of goods or services or both at the rate notified under the Act. Section 11, on the other hand, grants power to the Government to exempt any supplies from levy of tax. This prodigy is drawn from the age old Excise laws wherein the Parliament has chosen to use the words "taxability" and "excisability".
Quite naturally, where a supply is not a taxable supply then it has got to be exempt from tax. Hence, there should be two kinds of supplies-one that is taxable and the other that is not taxable, meaning exempt from levy. However, this is not true in case of the GST Act where exempted supplies are diffused into four categories. These very categories take all forms of returns under GST as:
1. NIL rated supply;
2. ZERO rated supplies with payment of tax;
3. NON GST Supplies ; and
4. Exempted supplies, i.e., other than 1 to 3 above.
Interestingly, Zero rated supplies are further broken into zero rated supplies with payment of tax and those without payment of tax. One would wonder when the supplies are zero rated and how does the question of payment of tax arise? Whatever be the rationale, these kinds of categorizations and division of exempted turnover into several types is causing more complications for the assessees community than anything else. This kind of scenario for certain does not gel with the slogan 'Good and Simple Tax'.
At the end of the day an assessee's turnover in the monthly returns would get divided into following seven categories:
(i) Taxable [other than zero rated]
(ii) Zero rated supply on payment of Tax
(iii) Zero rated supply without payment of Tax
(iv) Deemed exports
(v) Exempted
(vi) Nil Rated
(vii) Non-GST supply
Exempt Supply
2. Section 2(47) defines "exempt supply" to mean supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.
The definition suggests three kinds of supplies as exempt supplies:
(a) Those which attract NIL rate of tax;
(b) Those that are wholly exempt from tax;
(c) Non –taxable supply.
Section 9 authorizes the Government to levy and collect GST at rates notified by the Government on the recommendation of the GST council. Notification No. 1/2017, dated 28th June sets in order various rates ranging from Nil to 2.5% to 6% to 9% to 14% to 1.5% to .125% to specified set of goods as listed under Schedule 1 to Schedule VII appended to such notification. In other words, to see rate of tax applicability on goods one needs to run through the notification with schedules thereto. Section 11 grants power to the Government to grant exemption either absolutely or subject to any condition from the whole or any part of the tax leviable in the public interest but only upon the recommendation of the GST Council. For this purpose it is required to issue a Notification or special order in each case of grant of exemption. For instance, rate of tax Notification No. 2/2017 – Central Tax dated 28th June 2017 absolutely exempts as many as 149 items with defined Chapter/Heading/Sub-heading/tariff from intra-State supplies of such goods. This list of items covers items such as Printed books, newspapers, Condoms, live poultry, fish, meat, lassi, milk, plants, potatoes, tomatoes, onions and vegetables, fruits, water, salt, bread, electrical energy, firewood, bangles, raw silk, agricultural implements, hearing aids, etc. Further, by another Rate Notification No. 3/2917 dated 28th June 2017 any goods falling under any chapter heading if they are employed in oil and gas exploration be subjected to concessional rate of tax at 2.5% only. Oil and gas sector as of now is not required to have registration under GST Act. Likewise by another Rate Notification No. 12/2017 dated 28th June 2017 any supply of services falling under defined chapter heading will be subject to NIL rate of tax. Some of these would comprise of services of charitable institutions, renting of residential properties, Services by a hotel for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent etc.
Non-taxable supplies
3. Section 2(78) defines "non-taxable supply" to mean a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act. In other words, goods that do not find place in the list of items in the seven schedules including Nil rated items. Alcoholic liquor for human consumption is considered as a non-taxable supply u/s 9 (1). Section 23 further exempts persons from registration requirements if they are exclusively engaged in the business of supplying goods or services or both that are not liable to tax or are wholly exempt under the Act. An agriculturist who supplies produce upon cultivation is also exempt from registration requirements.
Zero rated supplies
4. Section 16 of the Integrated Goods and Services Act defines "zero rated supply" to mean any of the following supplies of goods or services or both, namely:––
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
These so called zero rated supplies are further complicated by dividing them into ones that are made without payment of tax upon furnishing a bond/LUT and those that are made with payment of tax. Chapter X incorporates a further procedure for both refund of IGST tax paid as well as refund of input tax credit to the exporter. Further, rule 96A governs the conditions for grant of permission to export without payment of tax upon furnishing of bond or letter of undertaking. The exporter is bound to incur tax in either of the following events:
(a) fifteen days after the expiry of three months from the date of issue of the invoice for export, if the goods are not exported out of India; or
(b) fifteen days after the expiry of one year, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange.
Conclusion
5. The irony of this provision is that a legitimate exporter is placed at par with a person who makes indigenous supplies to a SEZ unit. Exports out of India on the contrary must be categorized as part of exempted services and other rules and procedures for bonds, LUT and refund must be limited to their application to the cases of supplies to SEZ units. It is necessary to separate the two and make the law simple for exporters.
In the further course it is necessary to divide the turnover/supplies of goods or services or both into two categories, viz., taxable supplies and exempt supplies. At the same time it is also necessary to dispense with the definition of NIL rated and Zero rated supplies and to have them grouped within complete exemption category without any distinction. In other words, the rate tariff must do away with Nil rated structure and bring all such goods in the exempted notification. Exports must be exempt at their inception without insisting on any procedure of furnishing of any bond or letter of undertaking of any kind. Also it must be free from payment of any tax altogether, subject to realization of proceeds in foreign exchange, no matter the date of actual realization. It is advisable to consolidate NIL, ZERO, Exempted and Non GST Supplies and place them as one line item in GSTR -1 as non-taxable supplies. These simple measures can bring simplicity in the adherence to GST procedures, help taxpayers return their supplies conveniently and promote smooth implementation of GST laws.

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