Taxable Event in GST, Manufacture under Central Excise
Taxable Event in GST: This aspect has dramatical change as compared to the earlier laws. In Central Excise, the taxable event was “Manufacture”, for Service tax it was “Provision of service” and for Value Added Tax the taxable event was “Sale of goods”. Similarly, Octroi or Local Body Tax (LBT) was payable at the time of entry of goods in the Corporation limits. Luxury tax was levied on Hotel room rents.
Manufacture under Central Excise :
As per Section 2(f) of the Central Excise Act the term “Manufacture” had three different meanings –
- a) activities which are incidental or ancillary to the completion of the product.
- b) Processes defined as “Deemed Manufacture” in the Central Excise Tariff and
- c) In respect of specified goods in the Third Schedule where packing, repacking, labeling, re-labelling, putting MRP or changing MRP was considered as a manufacturing activity
Thus, to determine the applicability of excise duty, manufacturing activity should have been undertaken with reference to above criteria. There were many disputes on this issue as to whether a particular activity is manufacture or not. In the landmark judgment in the case of Union of India Vs. Delhi Cloth Mills Co.Ltd ( 1990 (27) ECR 151 SC ) it has been held by the Supreme court as under :
- a) The resultant product after the processing should be known in the market as a new product.
- b) The processes undertaken should result into bringing a different and identifiable product.
- c) ‘Manufacture’ implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation.
It is interesting to note that Labelling, relabeling, packing, repacking is not a manufacturing activity in the normal course. However, if the same activity is carried out in respect of specified goods as mentioned in the Central Excise Tariff as “Deemed Manufacture”, or in respect of goods listed in Schedule III of the Central Excise Tariff, it would be considered as “Manufacturing activity” and would attract excise duty. This created confusion amongst the manufacturers.
Thus, the single activity “manufacture” had different dimensions. It should be appreciated that the Taxable event issue and thereby applicability of excise duty was beyond the understandings of a common man.
Definition of Service –
The Service tax came into force in India in the year 1994. However, the definition of Service came into force only in July, 2012.
Section 65B(44) of the Finance Act, defined “Service” means any activity carried out by a person for another for consideration, and includes a declared service.
The definition excluded activities like Transfer of title in goods or immovable property, gift, Employer / Employee relationship, fees charged by Courts or Tribunals from the scope of Service.
Interpretation of the above definition will realize that the scope of service was very wide. It covered services mentioned in Section 66E of the Finance Act as “Declared Service”. One of the activity covered under Declared Service – agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act had many dimensions. This covered a number of activities like – penal charges recovered, demurrages recovered, Notice Pay recovered, any sum received for not doing a act etc. and were beyond the understanding capacity of a common man.
Further, for determining taxability of any service, reference to Section 66D (Negative List) was very much necessary. This section specified about 34 services which were exempt from service tax. Thus, the applicability of service tax was also complex and difficult to understand
Taxable Event in GST :
The taxable event in GST is “Supply of Goods and or services”. Thus, any supply of goods and/or service is subject to tax. Thus, we have moved away from complexity of taxable events under different laws to a single point in GST i.e. Supply.
As per Section 7 of the CGST Act scope of “Supply” includes
- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
- (b) Import of services for a consideration.
- (c) The activities specified in Schedule I, made or agreed to be made without consideration; and
- (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
The definition also provides for clarifying that activities specified in Schedule III are not be considered as Supply of goods or services.
From the above definition, it will be clear that the taxable event in GST is simple and at the same time it has a wide scope also.
In the scope of Supply mentioned above there is a reference to – supply made in the course of or furtherance of business. This reference has widened the scope of supply to a large extent. This is very important and favourable point in GST.