India: Key Takeaways From The Model GST Law

Last Updated: 6 January 2016
Article by SKP  

Yesterday (3 December 2015), the Model GST Law submitted by one of the sub-Committees of the government to all the state Finance Ministers was made available on certain web portals1. With the draft law of the much-awaited tax reform now available (until now only the 122nd Constitutional Amendment Bill was available in the public domain), it is imperative that businesses understand key insertions in the law including the intention of the legislation along with the probable impact on their business operations.

In this update, we have summarised the key provisions that would potentially impact businesses:

Taxable event would be 'supply' under GST: Concepts with regard to taxable events learnt over the years such as manufacturing, sale, service, etc. would cease to exist under GST and all supplies would be subject to GST. As anticipated, the meaning of the term 'supply' is defined in the provisions and the same would include all forms of supply (goods/services) such as sale, transfer, barter, exchange, license, import of service, etc. Also, a few supplies without any consideration would be subject to GST.

Here, it would be worthwhile to note that non-taxability of the barter system under the current VAT regime has now been covered in the definition of supply to make it taxable. Valuation of the same would prove to be a challenge to the department as well as industry.

Place of supply – a conceptual change: Currently, most of the indirect taxes are 'origin-based taxes' and payable to the exchequer where the supplier/service provider is located. However, GST being a 'destination-based tax', it would be crucial to determine the place where goods/services are supplied/consumed.

With this intention, place of supply for goods and for services are separately defined in the law itself, wherein for goods the place of supply is the place where goods are delivered, and for services the place of supply is the place where the service recipient is located subject to exceptions. Also, specific provisions are inserted to determine the place of supply for telecommunication services, insurance services, banking and financial services, etc. Furthermore, recent ambiguity with regard to place of provision of service for "intermediary" and "online database access or retrieval service" under service tax provided by service providers to overseas entities, which is subject to service tax can qualify as export under GST since the place of supply would be based on the place where the recipient is located. However, the place of supply for the banking sector, which is currently based on the location of the service provider would shift to the location of the service receiver, which would lead to stringent KYC norms and increase state-level compliances for banks substantially.

Furthermore, the following issues would arise in determining the place of supply in case of intangibles, bill-to/ship-to model, sale in transit, e-transactions, etc. as the receiver could be located in one state and the actual goods/services might be consumed in another state.

Valuation mechanism under GST: Under the current regime, respective legislations have issued Valuation Rules to determine the value for the purpose of respective levies such as service tax, excise, customs, etc. Similarly under GST, Valuation Rules are framed to determine the value for levying GST. As per the Rules, GST would be payable on transaction value, which is the price actually paid or payable for the said supply of goods and/or services between unrelated parties. Also, there are a few inclusions in the transaction value such as free supplies by recipient to the supplier in connection with the supply, royalty/license fees payable as condition of supply, any taxes/duties charged under any statute other than GST, etc. It is worthwhile to note that any discounts given after supply is effected would also be subject to GST.

However, issues relating to valuation on supplies to self (i.e. branches/agents) would arise as in such cases GST is to be levied on transaction value and typically, an entity may not supply the goods/services on transaction value to its own branches/agents.

Time of supply of goods and services: Under the current regime, taxes are payable based on taxable events defined such as excise is payable on removal of manufactured goods, VAT is applicable on sale of goods, service tax is applicable when service is deemed to be provided as per the Point of Taxation Rules, 2011. Similarly under GST, the concept of Point of Taxation Rules, 2011 is extended and the concept of time of supply is mentioned in the provisions to determine the timing for payment of GST. Typically, the time of supply of goods would be removal of goods or receipt of payment or issuance of invoice or date on which the buyer shows receipt of goods – whichever is earlier; whereas the time of supply of services would be issuance of invoice or receipt of payment or date on which the recipient shows receipt of services – whichever is earlier.

It is worthwhile to note that parameters are prescribed to determine the 'time' of supply. Thus, determining the 'time' of supply and further maintaining reconciliation between the revenue as per financials and as per GST Law could pose a major challenge for businesses.

Input tax credits under GST: Under the current regime, there are restrictions in claiming credits, i.e. under service tax and excise – construction, staff welfare, car hire, etc. cannot be claimed as credit. Also, under VAT, there are reversals/reduction in credit on account of stock transfers outside the state, procurement of items ineligible for credit, etc. The principle of GST to have a seamless flow of credits may be violated as there are provisions that lay restrictions on the claim of credit – such as goods/services used for personal consumption cannot be claimed, goods/services used for construction of immovable property, etc. and would lead to a cascading effect of taxes.

Inter-state supply of goods to attract 1% additional tax: Under the current regime, inter-state sales attract CST, which is not available as credit to the buyer and considered as cost. Similarly under GST, the concept of an additional 1% tax over and above IGST would be levied for two years only in case of inter-state supply of goods, which would not be available as credit, leading to an increase in cost in the supply chain.

Furthermore, such additional tax would not be applicable to inter-state branch transfers as there will be no consideration in such a transaction. It is worthwhile to note that there was a hue and cry in the industry with regard to the levy of 1% additional tax on inter-state branch transfers as the same would lead to an increase in tax cost for businesses with multi-state presence and the same seems to be resolved by restricting levy only in case of transactions with consideration.

Rate of GST not specified in the law: The Model GST Law does not specify the rate of GST.

New concept of rating introduced: A relatively new concept of a compliance rating system is introduced. A rating score would be assigned to an assessee based on prescribed parameters. The rating would be updated at periodic intervals and intimated to the taxable persons and such rating scores could also be placed in the public domain.

As key provisions have elaborated on the modus operandi under GST, it is essential to analyse the impact of the provisions in light of the transactions undertaken by businesses. Considering the entire regime of indirect taxes is overhauled, the change would impact each and every business vertical:

  • Purchase: In terms of selection of vendors, location of vendors for procurements, managing inventory, etc.
  • Finance: In terms of analysis of the business model, impact on pricing of goods/services, working capital, capital budgeting, etc.
  • Taxation: In terms of ascertaining the impact of the law on business transactions, managing compliances, prepare SOPs, etc.
  • Information technology: To upgrade to IT systems, check the reports to be generated under GST regime, user trainings, etc.
  • Supply chain: To manage logistics, lead time of customers, location planning, etc.
  • Sales/Marketing: To design the strategy under GST

As the Model GST Law is out in the public domain, the date of implementation of GST may not be far and it is expected that once the Constitutional Amendment Bill is passed in the Rajya Sabha, the road map on GST from the government, including the process of transition would be announced. Hence, it is advisable to work towards analysing the impact of the law on your business operations on an immediate basis as ascertaining the impact, preparing price structures, revamping operations, etc. would be a time-consuming exercise.

Once a distant dream, GST could soon be a reality!


[1] Authenticity of the document cannot be verified since there is no official announcement from the Ministry of Finance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.