An Overview of the Union Territory Goods and Services Tax Act (UTGST)

On this page you will read detailed information about Union Territory Goods and Services Tax Act (UTGST).

As you look to understand the complexities of the taxation system for union territories in India, gaining familiarity with the Union Territory Goods and Services Tax Act is critical. With the implementation of GST in 2017, union territories saw the introduction of this uniform indirect tax system to replace various taxes levied by the union and state governments. The Union Territory GST Act provides a framework for levy and collection of GST in the union territories of India. As you read through this overview, you will gain insight into key aspects of the Act including the applicability, taxable events, tax rates, registration requirements, input tax credits, and other important details regarding GST implementation in the union territories. Having a grasp of this Act will equip you with knowledge to navigate GST compliance and implementation in your business or professional endeavors in the union territories.

What Is the Union Territory Goods and Services Tax Act?

The Union Territory Goods and Services Tax Act (UTGST Act) was enacted in 2017 to make provision for levy and collection of tax on intra-State supply of goods or services or both by the Government in the Union Territories of India. The UTGST Act establishes the legislative framework for the unified goods and services tax (GST) in all Union Territories.

Levy of Tax

Under the UTGST Act, an integrated tax called the Union Territory tax (UTT) shall be levied on all intra-State supplies of goods or services or both in the Union Territories, except the State of Jammu and Kashmir. The UTT is collected by the Government of India on behalf of the Union Territories.

Rates of Tax

The rates of UTT are in accordance with those prescribed under the Central Goods and Services Tax Act. The tax rates are 0%, 0.25%, 3%, 5%, 12%, 18% and 28% for different goods and services. The UTT rates are based on the recommendations of the GST Council.

Set-off of Input Tax Credit

The UTGST Act allows seamless utilization or setoff of input tax credit between goods and services, across business verticals, and across all Union Territories under the GST regime. The input tax credit of UTT paid on purchases can be utilized for payment of UTT on sales, thereby avoiding the cascading effect of taxes.

Other Provisions

The UTGST Act also contains provisions related to registration, valuation, classification, time of supply, payment, returns, refunds, assessment, audit, advance ruling and appeals, similar to the Central GST Act. It aims to establish a uniform tax administration system in all Union Territories for a harmonized national market.

In summary, the UTGST Act provides the legislative framework for levy and collection of tax on intra-State supply of goods or services or both within Union Territories under the GST regime. It ensures a harmonized structure of GST across Union Territories.

Key Objectives of the Union Territory GST Act

The Union Territory Goods and Services Tax (UTGST) Act aims to make India a unified common market by integrating the economy of India through a uniform multi-stage tax on the supply of goods and services from the supplier to the recipient. The key objectives of the UTGST Act are:

Levying and Collection of Tax

The UTGST Act provides for the levy and collection of tax on the intra-state supply of goods and services or both by the Union territories. The integrated tax is levied and collected by the Central Government on inter-state supply of goods and services.

Apportionment of Tax

The UTGST Act also provides for the apportionment of tax and settlement of funds between the Centre and the Union territories. The amount of tax collected under the UTGST Act shall accrue to such Union territories.

Administration of Tax

The UTGST Act sets out the administrative mechanism for the levy and collection of tax. It provides for the officers who shall discharge various functions under the Act, defines their powers and responsibilities and specifies the procedures to be followed by them.

Input Tax Credit

The UTGST Act allows seamless flow of the input tax credit from one stage to another in the chain of value addition from the supplier to the recipient. The input tax credit can be utilized for payment of tax under the UTGST Act.

Miscellaneous Provisions

The UTGST Act contains various other provisions such as those relating to registration, returns, payments, refunds, assessment, audits, advance ruling, appeals, penalties, transitional provisions, etc. These miscellaneous provisions are essential for the implementation of the UTGST Act.

The UTGST Act aims to benefit both businesses and consumers by ensuring a common national market. It is expected to mitigate cascading effects of taxes and provide greater benefits to customers through reduced prices. The seamless flow of input tax credit will also improve the competitiveness of goods and services in the country.

In the previous post, we had shared information about Understanding the Arbitration and Conciliation Act 1996, so read that post also.

Scope and Coverage of the Act

The Union Territory Goods and Services Tax Act, 2017 (hereinafter referred to as ‘the Act’) extends to the Union territories of India. It consolidates multiple indirect taxes into a single tax called the Goods and Services Tax (GST) for the supply of goods or services within a Union territory or between/among Union territories.

Levy and Collection of Tax

The Act provides for levy and collection of tax on intra-territorial supplies of goods or services or both within a Union territory. Tax on supplies between/among Union territories is also levied and collected under this Act. The Central Government has the power to specify categories of supply of goods or services or both, on which tax will be payable under this Act.

Valuation of Taxable Supplies

The value of taxable supplies is determined in terms of the provisions contained in the Central Goods and Services Tax Act, 2017. The value includes any taxes, duties, cesses, fees, and other charges which are payable in respect of the said supply under any law for the time being in force, but does not include the tax payable under this Act.

Exemptions

The Central Government may, on the recommendation of the Council, by notification, exempt either absolutely or conditionally, the tax payable on supply of any goods or services or both from the whole or part of the territory of India. The Central Government may also revoke an exemption by amending or rescinding the notification.

To conclude, the Act aims to establish an efficient and transparent tax system by simplifying tax compliance, plugging tax evasion and reducing economic distortions caused by the existing multi-layered tax system in India. With the introduction of GST, it is anticipated that the cascading effects of taxes on production and distribution costs of goods and services are mitigated and streamlined across the Union territories.

Taxable Goods and Services Under the Act

The Union Territory Goods and Services Tax Act applies to the supply of both goods and services in India’s union territories. Goods refer to movable property that can be bought, sold, leased or imported. Services represent intangible items that can be bought and sold in the economy.

Goods

Under the Act, all goods such as raw materials, intermediates, components, and consumables are taxable unless specifically exempted. This includes all types of corporeal chattels that can be traded for value.

Services

Likewise, all services provided for a consideration are taxable unless exempted. These comprise anything other than goods that can be traded for value, such as:

• Work performed for an employer by an employee under a contract of employment.
• Provision of benefits such as utilities, banking, insurance or transportation.
• Transfers of intangible property such as intellectual property rights.
• Accommodation, entertainment or professional services.

To determine if a supply constitutes goods or services, one must consider the essential nature and substance of the transaction, not merely its legal form. Composite or mixed supplies that contain both goods and services are taxable as goods or services depending on which element is dominant.

The Act specifies certain transactions as “neither goods nor services”, including actionable claims, money and securities. These items remain outside the scope of GST.

In summary, the Union Territory GST Act applies very broadly to most supplies of value within India’s union territories. By covering all goods and services under a single tax, it helps create a unified market and reduces the cascading effect of taxes. At the same time, exempting certain necessary items helps achieve social and economic policy objectives.

GST Registration Requirements

To register under the Union Territory Goods and Services Tax Act (UTGST Act), certain eligibility criteria must be met. Any business whose annual aggregate turnover exceeds Rs.20 lakhs (Rs.10 lakhs for special category states) is required to register for GST. Voluntary registration is also permitted for businesses with turnover below the threshold.

Persons liable for registration

The following persons are required to register for GST:

• Suppliers making inter-state taxable supplies;
• Casual taxable persons;
• Non-resident taxable persons;
• Persons required to pay tax under reverse charge;
• E-commerce operators;
• Suppliers of online information and database access or retrieval services;
• Input service distributors.

Documents required

To apply for GST registration, you will need to provide essential documents including:

• Photographs
• Proof of business registration (if applicable)
• Bank account statements as proof of business activity
• Address proof of principal place of business
• Details of business activity and applicable tariff code

Upon successful verification of the submitted information, a 15-digit Goods and Services Taxpayer Identification Number (GSTIN) will be allotted. The GSTIN needs to be displayed on all invoices and correspondences to suppliers and customers.

Process of registration

Registration can be done either online through the GST Portal or by submitting an application to the jurisdictional officers. The application process is fairly straightforward and includes:

1. Visit the GST Portal website and register as a new user.
2. Fill in the registration form GST REG-01.
3. Submit the mandatory documents.
4. Pay the required registration fees.
5. Your application will be reviewed by the proper officer.
6. Once approved, your GSTIN will be issued.

Businesses should ensure they understand the GST registration requirements to avoid penalties and legal consequences for non-compliance. Registering for GST will enable you to avail input tax credits, issue tax invoices, and seamlessly conduct business across India.

Filing GST Returns

As a business registered under the Union Territory Goods and Services Tax Act, you are required to file regular GST returns to report your sales and purchases. These returns must be submitted electronically through the GST portal. Failure to file returns can result in penalties.

Types of GST Returns

There are three main types of GST returns – GSTR-1, GSTR-2, and GSTR-3. GSTR-1 is used to report sales, GSTR-2 to report purchases, and GSTR-3 is a consolidated summary of GSTR-1 and GSTR-2. You may need to file one or more of these returns depending on your business activities. Small taxpayers may need to only file GSTR-3, which is a simplified return.

Due Dates for Filing

GST returns must be filed on a monthly or quarterly basis depending on your aggregate turnover. Monthly returns are due by the 10th of the following month, while quarterly returns are due by the 15th of the month following the quarter end. It is advisable to file your returns at least a few days prior to the due date to avoid any last minute issues. Late filing fees and interest will apply for returns filed after the due date.

Steps to File GST Returns

1. Log in to the GST portal and click the ‘Returns’ menu.
2. Select the tax period and return type (GSTR-1, GSTR-2 or GSTR-3).
3. The return form will open. Fill in all the required details like sales, purchases, input tax credit claimed, tax payments, etc.
4. Preview and validate the return form. Make corrections if any errors are reported.
5. Submit the return. A confirmation message and ARN number will appear on successful submission.
6. File GSTR-2 and GSTR-3 (if required) in the same manner. GSTR-3 will auto-populate data from GSTR-1 and GSTR-2.

Filing accurate GST returns in a timely manner is crucial for avoiding interest, penalties and compliance issues. We recommend consulting an accountant to help you with the GST return filing process.

Input Tax Credit Mechanism

The input tax credit (ITC) mechanism allows the supplier of goods or services or both to claim the amount of GST paid on inputs (input tax) for the production of goods or services. The ITC can be utilized for payment of GST on outward supplies.

To claim ITC, the supplier must hold a tax invoice issued by a registered supplier. The ITC can be claimed only on inward supplies used for business purposes. The ITC should be claimed within the prescribed time period to avoid lapse of ITC. The amount of ITC that can be claimed depends on the possession of documents such as tax invoices, debit notes, etc.

The ITC can be utilized for payment of GST on outward supplies of goods and/or services. The unutilized ITC at the end of tax period can be carried forward to the subsequent tax periods. However, the ITC should be utilized within a prescribed time period from the date of invoice to avoid lapse of ITC.

The ITC cannot be claimed on certain inward supplies such as motor vehicles for transportation of persons, food and beverages, health services, cosmetic and plastic surgery, rent-a-cab, life insurance and health insurance except where mandated by Government. The ITC is also not allowed on goods and/or services used for personal consumption, goods lost, stolen, destroyed, written off or distributed as free samples.

The ITC mechanism aims to eliminate cascading effect of taxes i.e. tax on tax. It ensures that the tax is paid on value addition at each stage of supply chain. The ITC mechanism thus helps in reducing the cost of production of goods and services and thereby helps in increasing the competitiveness of the goods and services.

The ITC mechanism is a key feature of the GST regime. It ensures that the benefit of GST paid on inputs is passed on to the recipients in the supply chain. The ITC thus helps in seamless flow of tax credit across goods and services at every stage of supply.

GST Audit and Assessment Provisions

To ensure compliance with the GST Act, the government has put in place provisions for audit and assessment of registered taxpayers.

Audit

The Commissioner or any officer authorised by him may undertake audit of any registered taxpayer to verify the correctness of the returns filed, taxes paid, refund claims made, and compliance with the provisions of this Act. The audit can be conducted at the place of business or office of the taxpayer or through electronic means.The taxpayer should facilitate the conduct of audit and provide the necessary records, documents and information requested.

Assessment

The proper officer may assess the tax liability of a taxpayer who has defaulted in furnishing returns or has furnished incomplete or incorrect returns. The assessment is made to the best of the officer’s judgment based on all the relevant materials available on record. The assessment order shall be issued within five years from the due date for filing the annual return for the financial year to which the assessment relates.

Self-Assessment

Every registered taxpayer shall self-assess the taxes payable and furnish a return for each tax period, i.e., monthly or quarterly. The self-assessment return shall be scrutinized to verify the correctness of information furnished and taxes paid. In case any short payment of taxes is noticed, the proper officer shall issue a notice for the same. The taxpayer can file a revised return to correct any errors or omissions. The revised return replaces the original return.

The provisions of audit, assessment, and self-assessment aim to ensure that the correct taxes are paid by the taxpayers under GST. The taxpayers should exercise due diligence while discharging their GST obligations to avoid any adverse actions under the GST law. Strict compliance with the law and timely filing of accurate returns and payment of taxes can help taxpayers avoid undue hardship.

FAQs on the Union Territory Goods and Services Tax Act

The Union Territory Goods and Services Tax Act, 2017 (UTGST Act) governs the levy and collection of tax on the intra-state supply of goods and services in the Union Territories of India. If you have questions on how the UTGST Act impacts you, here are some frequently asked questions and answers:

Conclusion

As you have seen, the Union Territory Goods and Services Tax Act is a comprehensive legislation that aims to establish a common national market by replacing a range of existing indirect taxes levied by the Union and State governments. Its key objectives are to simplify taxation, avoid cascading of taxes, and ensure a common national market for goods and services across India. While its implementation has faced some challenges, the legislation holds promise in harmonizing indirect taxation and reducing compliance burdens for businesses. As a taxpayer or business owner, it is crucial you understand its provisions clearly. We hope this overview has helped explain the objectives and key aspects of this important tax reform. Stay updated on the notifications and procedures, and do reach out to professionals for any clarifications. With cooperation from all stakeholders, the GST regime can indeed usher in a more efficient indirect tax system for the country.

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