Introduction
Despite being 8 years old child, GST continues to be a developing legislation and presents unique interpretational issues with each passing day/year. In this article, I have tried to bring in a few concepts of the interplay of various other acts with GST.
As we all know, GST is a transaction-based law and deals only with the “Tax” part which is a government revenue. However, the transactions are regulated not by the GST Act, but also by other laws and regulations. Hence it is important and essential to understand the transactions and their eco-system and to highlight the readers with few instances to relate the importance of the interplay.
Relevancy in understanding Interplay
It is a frequent practice for all of us to connect with the Customs Act 1962 and Income tax Act 1961 while understanding the interplay of GST. However, there comes an additional element where various other acts come into picture such as Indian Contract Act 1872, Sales of Goods Act 1930, Legal Metrology Act 2009, Foreign Exchange Management Act 1999, Information Technology Act 2000 and so on.
Customs Act, 1962
All Export and Import transactions governed by the Customs Act. Both the Customs Act and GST talks about the valuation of the transaction in which the taxes, duties, and related levies are charged.
For calculating the IGST payment on Imports, the value of the article shall be the aggregate of the values as per Section 14(1) (i.e. transaction value) or Section 14(2) (tariff value) of the Customs Act, 1962 and for the purpose of calculating IGST payment for exports, the value of goods shall be governed by provisions of GST Law.
Further, the input tax credit and refund of the taxes paid both under the Export and Import are being claimed under the GST Act. It is also important to note that the integration of Customs and GST on the procedural, technical and system side is increasing day by day.
Interestingly, the Directorate General of Foreign Trade (DGFT) is considering making GST e-invoices received through the Goods and Services Tax Network (GSTN) mandatory for claiming deemed export benefits under the Foreign Trade Policy (FTP) 2023. This initiative is part of existing integration between DGFT and GSTN to enhance various data exchange and streamline the verification process of electronic Bank Realization Certificates (eBRCs) and deemed export transactions on the DGFT portal.
This reflects the dual administration for a single transaction.
Income tax Act, 1961
Recently, survey has been conducted across MNC’s on the nature of income tax notices and the grounds considered in such notices. Seventy percent of MNC’s have responded stating the major pain point on the grounds such as difference between GST turnover and Income tax Turnover, Adjustments made by Company in GST returns, Providing applicable explanation along with back up documents etc.
The reason behind such outcomes was due to the Integrated approach followed by the departments (CBIC and CBDT)which gives more weightage to the taxpayers to concentrate on the GST monthly/annual compliances vs Income tax reporting’s (Tax return filing/ Tax audit filing/TDS returns).
This reflects the dual checkpoints for a single transaction.
Indian Contract Act, 1872
Any transaction that takes up between two persons/companies/entities would get covered under Indian contract Act which will enable the transaction legally enforceable. Few common factors/terms between the Contract Act and GST are “Seller,” “Buyer,” “Consideration,” “Value” etc.,
Every form of supply addressed under GST is one or another kind of contract that is entered. Section 15 of GST talks about the value of the transaction and more specifically covers the discounts that are established in terms of an agreement entered. This term of an agreement would mean and cover the contract entered for a definite period. However, discounts are provided or determined basis transaction by transaction. In such case, establishing the “Pre-agreed” condition becomes a legal fiction.
This reflects establishing the dual implication for a single transaction.
Legal Metrology Act, 2009
The primary objective of the Legal Metrology Act, 2009 is to establish and enforce standards for weights and measures, ensuring accuracy and fairness in trade and commerce for goods sold or distributed by weight, measure, or number, and to safeguard consumer interests. This applies on various products such as Industrial, consumer, pre-packed etc.
Based on the recommendations in the 47th GST Council Meeting and followed by the notification , GST has created certain impacts on the “pre-packaged and labelled” goods. For a product to be considered as “pre-packaged and labelled” as per GST, the package is also required to bear declarations as specified in the Legal Metrology Act (LMA) and the Rules thereunder.
Under Legal Metrology, there are products wherein the label should mandatorily contain the MRP rate in the box (unit wise) also on the Carton, whereas under GST, the value of the product is considered based on the Invoice (which is a transaction value). Differences, if any, would attract legal implications, especially when the goods are in transit and intercepted by E-way bill authorities.
This reflects establishing the dual value for a single transaction.
Information Technology Act, 2000
Emerging business models such as E-Commerce, Cloud, E-aggregators have started playing a key role under GST with their technical transaction and complex business models. These are different from the traditional way of businesses.
The relevance of the Information technology Act with GST can be taken up with a simple example from the E-Commerce industries. The invoices issued by E-Commerce companies states that “it does not require any signatures as it is electronically generated,” whereas the GST Act mandates signature/E-signature/Digital signature to treat the invoices as valid.
The above said scenario was addressed and made permitted by bringing proviso in Rule 46 only in the year 2022 (5 years after implementation of GST). Considering the fast-growing business models, it is creating a challenging environment both for the businesses and for the exchequers to capture the actual transaction and ensure proper levies/compliance.
This reflects pro-active commitment for a single transaction.
Foreign Exchange Management Act, 1999
Though the Export and Import of transactions are managed by Customs and GST, the completion of such transaction will take place only after proper realization/ payment. Such payments and realizations are managed by Reserve Bank of India (RBI) through its AD bankers.
Under GST, the payment condition for the transactions is extended to a maximum of 180 days from the date of the invoice. In case of failure, there are reversal implications on the input tax credit availed. Similarly, the refund application under GST is tagged and managed with E-BRC, FIRC copies to ensure the realization/payments.
However, there are certain actions taken under FEMA which would attract and have implication under GST due to the time gap between the transaction reported under GST vs the time taken to frame the nature under FEMA. Few such instances are Netting off transactions (No realization or payment happens but Export (or) imported under GST), Consideration in INR (Not permitted to claim export benefits under GST), Write-Off (where the exporter writes off the receivable in the books of accounts) etc.
This reflects dual effect/implication for a single transaction.
Companies Act, 2013
Transactions such as Related party transactions, loans and guarantees provided to group companies, Corporate Social Responsibility (CSR), Transaction in securities, Directors fees etc. that are reported in the Annual Report of the Company/Annual Accounts of the Company shall have direct implication and impact under GST.
Though there are various clarifications and guidance provided for such transactions, these would have an impact at the time of preparation of the Annual Reconciliation statement (GSTR 9C) wherein every aspect of the above need to be carefully examined by the taxpayer.
This reflects dual compliance for a single transaction.
Way Forward
As we see the business transactions are going global and with their evolving issues, it becomes important for every person to understand the nature of the transactions to protect their interests and avoid disputes under various acts including GST.
Accordingly, every single transaction would involve dual administration, dual checkpoints, dual implications, dual value, dual compliance which puts the taxpayers in exercising “Dual Control” mechanism. Any tax position taken in connection with GST transactions only by considering “GST” shall become unidirectional and incomplete.
This article is a part of Article Writing Competition 2025.
Share this content: