L Badri Narayanan discusses the need for more clarity and less superfluous tinkering with new system
India’s recently introduced goods and services tax (GST) has brought in its wake benefits as well as a plethora of issues that still need to be addressed. One of the key benefits expected from the “one-nation, one-tax” promise of GST was that it would obviate the need for classification of supplies into goods and services. This was an indispensable feature of the previous indirect tax regime in India, which often led to litigation.
Introducing article 246A into India’s constitution gave the centre and states the concurrent power to levy tax on the same transaction, which reduced the need to distinguish between the supply of goods and services. However, the GST law continues to place much stress on whether the supply under consideration is that of goods or services.
The GST law defines “goods” as all movable property other than money and securities, whereas “services” are defined as anything other than goods, securities and money, but including services relating to them. Further, place of supply rules also differ for the supply of goods and that of services. Since the determination of whether a supply would attract the local state’s GST and central GST, or the integrated GST is based on these rules, correct classification of supply into goods or services is crucial. In addition, the time of supply rules, which determine when tax gets triggered, also differ for supply of goods and services, again posing the need for accurate classification.
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L Badri Narayanan is a partner at Lakshmikumaran & Sridharan.