National Conference RAJKOT BRANCH OF WIRC OF ICAI ICAI BHAWAN 29 th & 30 th Dec 2018

Transcription

1 National Conference RAJKOT BRANCH OF WIRC OF ICAI ICAI BHAWAN 29 th & 30 th Dec 2018 Controversies in GST 29th DEC 2018 Ashu Dalmia

2 Coverage of Presentation Initial Preparation for Annual Compliance GSTR-9 and Statutory Auditor Inter Branch Transactions Interest Liability Intermediary Services-Export Credit Note and Discounts 2

3 Initial Preparation for Annual Compliance 3

4 Ultimate Objectives Input tax Output Tax 4

5 Sequence of Activity Financial Statements Supply Transaction GSTR 9C Books of Account Document GSTR 9 GSTR I and GSTR 3B 5

6 Reconciliation Outward Supply Output Tax Inward Supply Input tax Taxes Paid 6

7 Outward Supply Output Tax Inward Supply Input Tax Credit Taxes paid GSTR 3B GSTR 1 Books of Account GSTR 3B GSTR 1 Books of Account GSTR 3B Books of Accounts GSTR 2A GSTR 3B Books of Accounts GSTR 2A Electronic Credit Ledger ITC 01 ITC-02 TRAN-01 TRAN-02 Books of Account GSTR 3B Electronic Cash Ledger Electronic Credit Ledger Electronic Liability Register 7

8 Possible Out Come of Reconciliation: Output Tax Short Paid Output Tax Paid in excess Output Taxes Paid in Wrong Head Input Tax Credit Claimed in excess Tax paid in wrong Head Input tax Credit Claimed is Less 8

9 GSTR-9 and Statutory Auditor 9

10 Standard on Auditing (SA) 250 (Revised) Consideration of Laws and Regulations in an Audit of Financial Statements The auditor shall obtain sufficient appropriate audit evidence regarding compliance with the provisions of those laws and regulations generally recognised to have a direct effect on the determination of material amounts and disclosures in the financial statements. 1 0

11 Example: Nature of Transaction Value as reported in GSTR-9 (RS in LACS) Taxable Out Ward Supply 100 Inward Supply Subject to RCM 20 Total ITC claimed 8 Reversal under Rule 42 0 Reversal under Rule 43 0 Nature of Transaction Value as reported in GSTR-9 (RS in LACS) Taxable Out Ward Supply 100 Exempted Supply 30 Total ITC claimed 8 Reversal under Rule 42 0 Reversal under Rule

12 Chapter V of the Chartered Accountants Act, 1949 contains provisions regarding `misconduct. Professional misconduct shall be deemed to include any act or omission specified in either of the two schedules to the Act.. 12

13 Professional Misconduct CA ACT First Schedule Second Schedule Four Parts Three parts 13

14 Technical lapses leading to Misconduct-Part I Schedule II Clause -5 Clause-6 Clause-7 Clause-8 failure to disclose a material fact failure to report a material misstatement failure to exercise due diligence failure to obtain sufficient information 14

15 Inter Branch Transactions 1 5

16 Supply. Supply Even without Consideration Schedule I Supply Includes.. Furtherance or in course of Business For Consideration Schedule I Supply Supply between distinct person Supply between Related person 1 6

17 Concept of Distinct Person in GST Delhi Office Option A Outsource the R&D Activity to a Company in Mumbai Independent company from ADA ADA Pharmaceutical Limited ADA needs R&D Support Option B Only for doing R & D functions for own company only Production Warehousing Sales offices are in Delhi Setup own branch in Mumbai 1 7

18 What is distinct person? Chandigarh Branch Office ADA Retail Limited Mumbai Marketing and Branch Office Delhi- Corporate Office Chennai Branch Office Kolkata Branch Office 1 8

19 Supply between Distinct Person GOODS SERVICES 19

20 Possible Supply liable for Cross Charge Movement of Goods Technical Engineering Designing Functions Legal Taxation Counsel Activities R&D Functions Sales & Marketing Managerial Functions Accounts and Support functions Use of Licence/Payment of Royalty 2 0

21 Cross Charge Application of Matching Concept Need to extend the Matching Concept at GSTIN level 21

22 Compliance Registration Documentation Valuation Periodic Monthly/Quarterly Compliance Annual Compliance 22

23 Valuation Value of Supply is Transaction Value Supplier and Recipient are not: Price is the Sole Consideration Distinct Person Related Person 23

24 Valuation Distinct/Related Person Open Market Value Valuation in case of Related or Distinct Person Invoice Value=open market Value If Recipient eligible for full input tax credit Value of supply of goods or services or both of like kind and quality 110% of cost of production or manufacture or cost of acquisition of goods or provision of services 90% of the price charged for goods from unrelated customer by the recipient 24

25 Recipient Eligibility to take full Input Tax Credit? AAR-GKB LENS-WB On particular Invoice? Global Level? 25

26 ISD Input Service Distributor means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office. 26

27 ISD Vs Cross Charge ISD involves ITC (necessarily) on services which is attributable to other office however Crosscharge is almost mandatory requirement; and may or may not involve ITC; and relates to goods as well as services. In case of cross charge, Service is provided from one unit to another and mostly it is in form of Business Support/Management Services.However in case of ISD, there is no service element at all, it is only distribution of ITC from ISD unit to other unit. Goods supplied from one unit to another unit will be cross charges, ISD is not possible for goods. ITC on expenses incurred for managing own office will not be transferred on ISD basis e.g., rent, security, housekeeping; it may be availed through cross charge. However, ITC on Certification fee, Audit fee, Security services,amc at respective units may be transferred as ISD. 27

28 What if cross charge invoicing not done? 28

29 Penalty Rs 10k Amt of Tax evaded Supply of Goods or Services without issue of Invoice Failure to Take Registration May lead to imprisonment up to 5 years 29

30 AAAR 30

31 Columbia Asia Hospitals Private Limited, Dated , Karnataka- AAAR Columbia Asia Hospitals Private Limited is operating across six different states having eleven hospitals out of which six units are in the state of Karnataka. It has its "India Management Office (IMO)" i.e Corporate Office in Karnataka and performs following functions Rent paid on immovable property- Telephone services Business consultancy services Travel Expenses allocated to other states by charging GST allocated to other states by charging GST allocated to other states by charging GST allocated to other states by charging GST Accounting, administration and Maintenance of IT System are carried out by the employees stationed at IMO-benefit of these activities flows across the Company/units located in other states 31

32 Columbia Asia Hospitals Private Limited, Dated , Karnataka- AAAR ISSUE: Whether the activities performed by the employees at the Corporate office in the course of or in relation to employment for the units located in other states (distinct persons) shall be treated as a supply in terms of the entry 2 of Schedule 1 of the CGST Act or whether it will not be treated as a supply in terms of the entry I of Schedule III of the said Act? 32

33 Ruling The employee-employer relationship is to be viewed separately for every registered unit of the business entity. Therefore, in the instant case, the services of the employees at the IMO in so far as they are benefiting the other registered units of the Appellant are to be considered as a 'supply of service' by one distinct person to another, and by virtue of the entry 2 of Schedule I, supply of services between distinct persons even if without consideration is a "supply" within the scope of Section 7 and is liable to GST Cross Charge Vs ISD :In the case of cross charge, there is an element of service rendered by the person who cross charges his other units even though they belong to the same legal entity. On the other hand, in the case of ISD, there is no element of service at all, but a mere distribution of credit. Further, certain expenses like rent paid on the immovable property, housekeeping services, etc. incurred in maintaining and operating the IMO will not be distributable under the ISD route, rather they are required to be allocated to the other units only by way of cross charge. 33

34 Interest liability 34

35 Interest on Wrong Availment of ITC Section 50 of the CGST Act provides for levy of interest under three circumstances: a. Where a person fails to pay the tax or any part thereof to the Government within the period prescribed. Failure to pay tax includes payment of tax by utilisation of wrong Input tax credit as it is a void payment. a. Where a taxable person who makes an undue or excess claim of input tax credit u/s 42(10)-Provision of matching still not in operation. a. Where a taxable person makes undue or excess reduction in output tax liability u/s 43(10)- Provision of matching still not in operation. 35

36 Change Recommended 31 st GST Council Meeting Interest to be charged only on the Net Tax Liability of the taxpayer, after taking into account the admissible ITC Amendment of section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e. interest would be leviable only on the amount payable through the electronic cash ledger 36

37 Intermediary Services-Export 37

38 Export of Service Supplier of service is located in India Recipient of service is located outside India Place of supply of service is outside India Payment received in convertible foreign exchange Supplier and Recipient are not distinct person 38

39 Place of supply Place of Supply Goods Services Other than Import or Export- Section 10-IGST Import or Export-Section 11 IGST Location of Supplier Location of Recipient Both in India- Section 12 Either one is outside India- Section 13 39

40 Intermediary intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account; 40

41 Vservglobal Private Limited, Dated , Maharashtra Vservglobal Private Limited Overseas Clients Transactions; The applicant is engaged in providing back office support services to overseas companies. Overseas Clients are engaged in trading of chemicals and other products in International trade. Vserv will come into picture after finalization of Purchase and Sale order by a Client. Issue: Classification of goods or services or both. Determination of the liability to pay tax on any goods or services or both. Whether the aforesaid services proposed to be rendered qualify as 'Zero Rated Supply. 41

42 Fact of the Case: The Applicant is an Indian Company having its registered office at Mumbai. The company is incorporated to provide back office support services, Generate order no in VOSS, Inform Customer on tentative schedule, Liaise with supplier for Cargo Readiness, Send Payment request to Client, Arrange inspection certificates if applicable to overseas companies. Clients are engaged in Trading of Chemicals and other products in International Trade. Vserv will come into picture after finalization of Purchase and Sale order by a Client. Vserv will undertake following activities for and on behalf of Clients. In supporting applicant provide reference of GoDaddy case. Advance Ruling: The above case are not similar to facts of M/s GoDaddy, the provision of support services was admittedly on principal to principal basis and were provided with sole intention of promoting the brand GoDaddy US in India for augmenting its business. In present case, we find that the activities undertaken by the applicant are for and on behalf of clients to facilitate supply of goods and services between the clients their customers, hence the supply can not be treated as zero rated supply. 42

43 Toshniwal Brothers (SR) (P.) Ltd., Dated , Karnataka Toshniwal Brothers (SR) (P.) Ltd. Overseas Customers Transactions; Applicant is a supplier of services to overseas clients, he has entered into an agreement with their customers, who are located outside India for providing marketing, sales promotion and certain post-sales support services. Consideration for these services would be received in convertible foreign exchange. Issue: Whether pure and mere promotion and marketing services will be regarded as "intermediary services" under section 12 of IGST Act, 2017 for determining the place of supply? If after sale support services are also provided under a composite contract, would it then be composite supply? What will be the principal supply for such contracts? Whether the contracts would qualify as exports if the client is overseas entity and will be a zero-rated supply. 43

44 Fact of the Case: The Applicant is a private limited company and he is a supplier of services to overseas clients and is engaged in the business of promotion and marketing and after sale support services as a composite supply. He has entered into an agreement with their customers, who are located outside India for providing marketing, sales promotion and certain post-sales support services. Consideration for these services would be received in convertible foreign exchange. The said services are provided in respect of scientific instruments used in research and development and quality control primarily in fields of Nano Science, Material Science, Bio Pharma and Polymer Sciences. The applicant express his view as the activity undertaken by him by way of promotion and marketing services is not intermediary services. Advance Ruling: The contract of services supplied are not pure and mere promotion and marketing services provided is of the nature of facilitating the supply of goods would amount to "intermediary services". And after-sale services are not in the nature of a composite contract and hence there is no question of determination of what will the principal supply. 44

45 Credit Note 45

46 , , ,