GUEST COLUMN

 

Exempt, Nil rated, Zero rated and Non-GST supply - Clarity under the Revised Draft Model GST law?

 

Nirali Akhani

Associate/Advocate, Lakshmikumaran & Sridharan

 

India is on the verge of implementing by far the most radical taxation – the Goods and Services Tax (GST), proposed to be rolled out in April, 2017. Model GST Law was released in public domain in June, 2016. In September, 2016 GST Council was formed and Draft Rules and Formats pertaining to returns, refund, registration, payment and invoice were made available on CBEC website. Form GSTR 1- a part of the draft rules and formats for returns released in September, 2016 require disclosure of details of outward supplies of goods and/or services made by a registered taxable person. Table 9 of Form GSTR-1 require declaration of nil rated, exempt and non GST outward supplies. However, the question remains as to what will be the meaning of nil rated, exempt and non GST outward supplies and what would be the scope of zero rated supplies? For this, reference is made to definitions of “exempt supply” and “zero rated” supplies under the Model GST law released in June, 2016:

 

Exempt Supply

 

Section 2(42)-exempt supply means supply of any goods and/or services which are not taxable under this Act and includes such supply of goods and/or services which are specified in Schedule . . . of the Act or which may be exempt from tax under section 10;

 

Under the Model GST law, exempt supply meant non-taxable supply of goods and/or services. The definition of exempt supply under Model GST law also included goods and/or services specified in a particular schedule or the goods and/or services exempted by central government on recommendation of GST council by virtue of notification. These exempt supplies are non-taxable and credit on inputs of these supplies cannot be availed.

 

Zero-rated Supply

 

Section 2(109)-zero-rated supply means a supply of any goods and/or services on which no tax is payable but credit of the input tax related to that supply is admissible;

Explanation.- Exports shall be treated as zero-rated supply.

 

Under the Model GST law, Zero-rated supply meant the supply of goods and/or services on which no CGST (Central Goods and Service Tax), SGST (State Goods and Service Tax) or IGST (Integrated Goods and Service Tax) would be payable and export of goods and/or services are to be treated as Zero-rated Supplies. From the definition above, it is understood that credit on the inputs related to such zero-rated supplies is admissible. However, under the IGST Act, 2016, export of goods and/or service was deemed to be inter-state supply and no provision for treating export as zero rated supply was available under the IGST Act, 2016.  Also, the Model GST law did not provide any definition or any clarity on nil rate and non GST Supply.

 

After the release of Model GST law, representations were made by various sectors of industry. Taking into account the representations, the government uploaded the Revised Draft Model GST Law, Draft IGST Law, Draft GST Compensation Law on the website of department of revenue on November, 26th 2016. There are certain provisions that have been clarified under Revised Draft Model GST Law.

 

This article focuses on whether or not clarity has been achieved on exempt, nil rated, zero rated and non GST supplies of goods and/or services.

 

The Revised Draft Model GST Law and Draft IGST Law as uploaded on November 26th 2016 incorporates the following changes.

 

Exempt Supply

 

Section 2(44) “exempt supply” means supply of any goods and/or services which are not taxable under this Act and includes such supply of goods and/or services which attract nil rate of tax or which may be exempt from tax under section 11.

 

Under the Revised Model GST law, the definition of “exempt supply” has been changed. Nil rate of tax has been included in the definition of exempt supply.

 

Zero-rated Supply

 

Section 2 (111) “zero-rated supply” shall have the meaning assigned to it under section 16 of the IGST Act, 2016.

 

Section 16 of the IGST Act

Zero rated supply

(1) “zero rated supply” means any of the following taxable supply of goods and/or services, namely -

(a) export of goods and/or services; or

(b) supply of goods and/or services to a SEZ developer or an SEZ unit.

 

This is an insertion under the Revised Draft IGST Law. Under the Revised Draft IGST Law, exports of goods and/or service or supply made to SEZ developer/unit will be treated as zero-rated supply. Section 16 of the IGST Act provides for availing of credit for making zero rated supplies, notwithstanding the fact that the supply is an exempt supply i.e. exempt goods and/or services exported or exempt goods and/or services supplied to SEZ developer/unit will be treated as zero rated supplies and credit on the same can be availed. Thus, by treating exports as zero rated supplies clarity to the extent of scope of zero rated supplies is provided in the Revised Draft IGST law.

 

Conclusion:

The revised draft GST law has brought about clarity related to zero rated and exempt supplies. It is also clear that deemed exports will not be covered under Zero rated supply. However, nil rated supplies or non-GST supplies are not yet defined in the revised draft GST law and clarity on the same is awaited. 

 

[Views expressed are strictly personal]