ca-parth-sharmaDefective Face of Model GST Law : A Critical Analysis

  1. Conflict between definition “address on record” and “location of service recipient”

The term “address on record” has been used only in IGST section 6(2), where default POPS of services provided to other than registered person will be location of recipient where address on record exist.

It is to be seen that although definition of ‘location of Service recipient’ is given but it has not been used in deciding POPS when SR is unregistered. Which undermined sec 2(64)(ii), which says that location of unregistered SR is fixed establishment.

Thus, the lawmaker should evaluate which section will provide location in case service recipient is unregistered.

  1. Wrong reference of PAN India given in definition of ‘Aggregate Turnover’

The term ‘aggregate turnover’ has been used in two places i.e. taxable person and composition levy. In both references, turnover is needed to be computed which will decide whether a person will fall in given reference or not.

Definition of aggregate turnover is given in law covering taxable as well as non taxable supplies. Aggregate turnover definition calculates supplies on PAN India basis. On contrary, composition scheme is taken state wise basis. Taxable person is seen on state basis and on its basis registration is to be taken. Aggregate turnover is calculated on PAN India basis while on other hand registration is taken on state basis, thus creating a mismatch.

Thus, the lawmaker should make necessary amendments in definition of aggregate turnover to bring it in line with taxable person and composition scheme.

  1. Inclusion of non taxable and exempt supply in definition of ‘Aggregate Turnover’

The definition of aggregate turnover has included non taxable, exempt and export supplies. In earlier laws, no such inclusion was being made.

By this step, the lawmaker has intended that the term aggregate turnover is to define scale of business and not taxable supplies. In other words, this definition is to be compared with limit of 4Cr in excise and not with 1.5Cr.  This step will have direct implication in composition levy, registration and taxable person recognition. Earlier laws have always given a basic threshold exemption to the suppliers on above of the other exemptions received by them. The above inclusion will take away that exemption.

Thus, the lawmaker should again reconsider this definition and exclude exempt supplies from the definition.

  1. Definition of ‘Agriculture’ attracting taxability on Dairy farming and poultry farming

The definition of agriculture has excluded dairy farming and poultry farming from its ambit. It will lead to bringing GST liability on milk and egg producers and other miscellaneous services. All these activities were excluded from ambit of all earlier laws.

Thus, the lawmaker should reconsider its stand on definition of agriculture and make necessary amendments to remove taxability on aforesaid activities.

  1. Conflicting stand of definition ‘Agriculture’ and ‘Agriculturist’ on Sericulture

The term agriculture tends to include sericulture in its ambit. The term agriculturist is defined to include those persons who cultivate land personally for the purpose of agriculture.

In sericulture, silk is produced by breeding silk worm on mulberry leaves to build silk cocoons. Thus, the main emphasis of sericulture is on silkworm breeding and not land cultivation. Thus, there may be instances where sericulture the agriculturist may be different from person who cultivates personally.

Thus, the lawmaker should amend the definition of agriculturist accordingly to take in ambit sericulture.

  1. Usage of ‘Central or State Government’ even when ‘Appropriate Government’ is defined

The term Appropriate Government is defined in the law to mean CG in case of CGST & IGST and SG in case of SGST. Thus it is supposed that whenever government is to be referred this term will be used.

However, in numerous occasions in Model GST Law government has been referred by terms such as ‘Central or state government’ or ‘central/state government’ etc. Also, the appropriate government term is also used in other places. This has led to inefficiency and non uniformity is law formation.

Thus, the lawmaker should make proper reference of the term appropriate government in all places where government is referred.

  1. Still ‘board’ is defined to mean Central Board of Excise and Customs

Apex body of GST is board which is defined to mean CBEC.

It is to be noted that excise will be subsumed in GST and excise will not be in existence.

Thus, the lawmaker should change the board CBEC to something referring to GST.

  1. Non Usage of term ‘Capital asset’ in place of ‘Business assets’

The term capital asset is defined with reference to income tax act which further excluded jewellery used in personal purpose. The term business asset is not defined in the law.

The lawmaker has nowhere used ‘capital asset’ in Model GST Law, whereas term business asset which is not defined in the law has been used multiple times. Business asset is used in schedule I and II, which intends to levy GST on business assets for proper credit availment. Without proper definition, business asset will take in its ambit all assets of business including cash and debtors, which would defeat the purpose of schedules.

Thus, the lawmaker should consider using term capital assets in place of business assets or defining business assets separately to avoid ambiguity in law.

  1. Reference of AS-17 instead of IND AS in definition of business vertical

Business vertical is defined in model GST law taking reference from AS-17 which should be replaced by relevant IND AS.

  1. Definition of Capital Goods has not incorporated changes made in recent finance act.

The term Capital Goods has been copied from previous CCR rules. Whole definition is kept similar to previous law.

Changes made in recent finance act relating to wagons and pumping water has not been incorporated in the new law.

Thus, in order to bring definition in new law in line to earlier law, the lawmaker should make necessary changes.

  1. No mentioning of Colourable device of security deposit in definition of consideration

The term consideration has been defined in the act. A proviso is added to exclude security deposit from ambit of consideration if not used as consideration. The language used is taken from educational guide.

The wordings have straight away excluded security deposit which is returnable from ambit of consideration. However, when the security deposit is used as a colourable device and interest portion on that security deposit forms consideration then will that security deposit will be included in consideration.

Thus, the lawmaker should also make a reference to security deposit as a colourable device.

  1. Non mentioning of words ‘recommendation of council’ in definition of continuous supply of services

The term continuous supply of service has been defined in section 2(31). It includes services which are notified by the government. Continuous supply of services is dealt in section 13.  Section 13(4) defines that CSS will be those services notified by the government on recommendation of council.

In both the places, power is given to government to notify CSS but in one place recommendation of council is needed while on other no recommendation is needed. This has led to non uniformity in law.

Thus the lawmaker should clear this conflict by making necessary changes as desired.

  1. Wrong usage of word ‘place of business’ in place of ‘business establishment’ in definition of fixed establishment

Term ‘fixed establishment’ is defined in the law with the language which is taken from educational guide. The only difference is that earlier fixed establishment was other than business establishment and not business establishment is replaced with place of business.


In earlier law, location was divided into

Business establishment – Head Office, Central Office. (Ex- A co having HO in india and Branches in world)

Fixed establishment- Branch Office (ex- overseas business house sets up office in india to provide service)

Now the lawmaker has substituted word business establishment with place of business. This is totally inappropriate as place of business is defined to mean all possible places where supply is possible. In other words, the lawmaker has defined fixed establishment as exclusion of place of business which is not correct as place of business is a wider term then fixed establishment.

Thus, the lawmaker should redraft this provision to make it logically sound. In location provision, only bifurcation is registered place of business and non registered place of business. Thus, requirement of this word should be re-evaluated.

  1. Absence of explanation of deemed marketability in definition of ‘Goods’

The definition of goods is borrowed from sale of goods act.

Though the definition speaks that all movable property is goods but it has been held by judiciary that “Goods should have a commercial aspect of capable of being purchased and sold and served as a result of such sale. Goods in order to be called as goods should satisfy the test of marketability i.e. they should be something which can be ordinarily come to the market to be bought and sold. It must be something which is known to the customers and the commercial community.” In CEA, there arose a dispute regarding taxability of scrap calling it non marketable and thus non taxable as it is not a good. To end that dispute explanation was added to make any material capable of being bought and sold for a consideration would be deemed to be marketable. The same is not clarified in the given law which would mean that scrap & wastes are outside taxability criteria. This matter should be dealt in final law.

Thus, the lawmaker should bring necessary explanation in definition of goods to avoid any disputes in future.

  1. Levy of GST on sale of securities due to inclusion of securities in definition of ‘securities’

Definition of goods in this law includes securities. Meaning of Securities is derived from SCRA act, which basically includes all shares, debentures, options and other instruments. Securities were included in definition of goods in service tax and negative list contained a clause making trading of goods non taxable, thus securities were non taxable. In VAT, definition of goods excluded securities, thus no VAT was applicable on them.

However in this law, securities are included in definition of goods and GST liability is attracted on supply of goods, thus making securities liable to GST. It seems inappropriate that GST is levied on sale and purchase of shares. What would be fate of Securities transaction tax is also questionable.

Thus, the lawmaker should exclude securities from definition of goods.

  1. Wrong inclusion of condition of deemed distinct person in definition of ‘import of service’

Import of service is defined on similar grounds of export of services. Import of service is critical as importation has been made liable to GST. Clause (d) specifies that transaction between deemed distinct person will not be considered as import of service. Deemed distinct person are HO of a company in India and branch in other country, vice versa.

Due to addition of this clause in this definition, the lawmaker has made self supply of services by deemed distinct person exempt from tax, which is inappropriate. This clause was relevant in export of service definition as many export benefits were attached to it. But exempting self supply from GST is not logical.

Thus, the lawmaker should remove clause of deemed distinct person from this definition.

  1. No clause enabling credit of GST paid on capital goods.

Model GST law credit has enabled credit vide definitions of ‘input’, ‘input services’ and then linking these definition to ‘input tax’ and ‘input tax credit’, which enables credit vide section 16. In the new law, a separate definition of capital goods is given containing all the exemptions and conditions. On other hand, exceptions and conditions of input and input services is incorporated in section 16.

It is to be noted that definition of input tax credit nowhere mentions capital goods. Capital goods have not been mentioned in section 16. It is clear from combined reading of all the sections that no enabling section for giving input of GST paid on capital goods is provided in the act.

Thus, the lawmaker should suitably modify the mechanism of availing the credit. Decision should be taken that credit will be governed by definitions or sections or both.

  1. Supply by agent treated as output tax of principle

In the law, a separate definition of output tax is given. The definition of output tax intends to include tax on supply made by an agent as output tax of the principle.

Section 3 of the law, deems supply by principle to agent liable to tax. Thus clarifying that transaction between principle and agent will be treated as supply. However, definition of output tax includes tax on supply by agent as output tax of principle, which is not correct. Additionally, definition of outward supply doesn’t treats outward supply by agent as outward supply of principle. The term output tax is used many places in the law which will lead to misleading results.

Thus, the lawmaker should correct the definition of output tax and bring uniformity in the act.

  1. Unnecessary usage of terms in definition of outward supply

The definition of outward supply has used the term ‘supply of goods’ and after that copied language used in of section 3 i.e. ‘whether by sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made by such person in the course or furtherance of business ‘.

As the lawmaker has already mentioned supply of goods then there was no need of copying the language again. Moreover, if the lawmaker has explained supply in this definition, then it implies that the meaning of supply doesn’t have to be derived from section 3, which would further complicate the situation as deemed supply won’t be covered.

Thus, the lawmaker should cut short unnecessary length of the definition and bring clarity.

  1. Improper usage of definition of outward supply.

Definition of outward supply is made on similar grounds of output service in CCR rules. Outward supply has been defined to include all supply made by the person except the supply on which duty is payable on reverse charge basis. This holds appropriate in case of disallowing credit.

In earlier law, this definition was restricted to CCR rules, but in this law, definition is not only used in relation to sections of credit but also in various other places such as return, account, matching concept etc. For instance, section 29 specifies that inward supply should be matched with outward supply to ensure credit of taxes. On one hand, inward supply includes RCM supplies and other hand, outward supply doesn’t include RCM supplies. Thus in inward supply detail of RCM input supplies will be given but RCM output supplies won’t be given, thus creating a mismatch.

Thus, the lawmaker should remove this ambiguity and ensure proper usage of the term.

  1. Inclusion of agent’s premises as place of business of principle

The term place of business is defined to mean places where a supplier carries on his business. This term is used many places in the law. Point (c) of the definition includes premises of agent in the purview of place of business of principle.

It is to be noted that section 3 makes supply by agent and principle taxable. Thus, treating them separately in eyes of GST. On other hand, definition of place of business makes agent premises as place of business of principle, thus creating a conflict.

Thus, the lawmaker should analyze the issue and make necessary changes in the law.

  1. Wrong inclusion of immovable property in definition of service.

The definition of service is defined to mean anything other than goods. In earlier law, an elaborate and specific definition of service was used. But this new definition is too general in nature.

Due to generality of definition, anything in this planet other than goods will be treated as service and its supply will be taxed to GST. Thus, immovable property will get included in definition of service and its transfer will be liable to GST.

Thus, the lawmaker should clear this ambiguity and exclude immovable property from definition of service.

Disclaimer: The views and analysis expressed in above article are the author’s own and should not be treated as legal advice. The author can be reached at or

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