Simple Handbook on GST

Transcription

1 Simple Handbook on GST Team Hiregange Published by Team Hiregange #1010, 26th Main (Above Corporation Bank), 4 th T Block, Jayanagar, Bangalore P a g e

2 Contents 1. Overview of Goods and Services Tax (GST) in India Determination of GST liability Impact of GST on manufacturer, trader, service provider including managing vendors: Background for levy of GST and Supply Levy and collection of CGST, SGST and IGST Classifications and Rates Place of Supply Time of Supply Valuation Exemption Input Tax credit under GST Regime Composition Scheme Reverse Charge Imports / Exports Stock Transfer and Job Work Refund under GST Transitional Provisions and other provisions Other GST Issues IMPORTANT PROCEDURES Registration Migration Tax Invoice and other documents for movement Filing of Return (Last Return / First Return) Payment of GST Matching Credit- Credit Procedure Job work procedure Procedure for export of goods P a g e

3 1. Overview of Goods and Services Tax (GST) in India Introduction: Under the earlier taxation system for indirect taxes, number of indirect taxes were being levied and collected at multiple rates both by Central Government and State Governments on different activities undertaken. The international best tax practices in indirect taxes look for, easing out the complications and cumbersome confusing compliances and reduce interaction with different statutory authorities. Similar thought process was started in India to consolidate number of taxes in to one system of taxation uniformly across the country in late 1970s. In that direction, reforms were thought of many times and partial reforms were being undertaken in the respective taxation laws. The move towards introduction of Goods and Services Tax (GST) was made by the then Finance Minister Mr. P. Chidambaram in budget to introduce GST from Though an attempt to implement GST was made by earlier, the same could not be achieved since the Constitution Amendment Bill 2011 lapsed as it could not be passed. Constitutional Amendment for GST and introduction of GST Later in order to implement GST, there was a requirement of amendment to Constitution whereby the powers to levy GST concurrently by both Union and States had to be provided for. Accordingly, 101st Constitution Amendment Act was enacted by Presidential assent on 8th of September With the changes made in the constitution under the GST regime, concurrent jurisdiction for levy and collection was given both Centre and State to tax the supply of goods and/or services within the State, whereas Centre would have jurisdiction to tax inter-state supply of goods and/or services. After the enactment of the constitution amendment, the same should be given effect to by notification. On issue of such notification, the constitution would get effectively amended. Accordingly, the notification was issued on 16th of September 2016 whereby the changes were made effective from that date. On such changes the earlier taxes like sales tax, service tax etc., being levied would be out of the powers of Union and States. As a transitional 3 P a g e

4 measure, the Constitution Amendment Act has provided a time frame of one year, whereby the earlier taxes could have been continued to be collected. Therefore, unless further amendment is made or some other legal changes are brought out, the earlier system of taxation had to come to an end latest by 15th of September 2017 giving way for introduction of GST. Further as a part of the constitutional amendment, for the introduction of GST there was a requirement of constitution of GST Council wherein all the States along with Union have representation and the matters relating to GST are discussed and decided therein before being recommended or implemented. The said GST Council was constituted on 12th September The said constitution amendment is only enables the Union and States to enact a law for implementation of GST. The actual implementation of GST has to happen with the enactment of GST law (GST Acts) by Union and States along with corresponding rules and regulations to be framed there under. In that direction, Central Goods and Services Tax Act, 2017, Integrated Goods and Services Tax Act, 2017, Union Territory Goods and Services Tax 2017 have been enacted and have come into effect from 1 st July 2017, though some procedural provisions were made effective earlier and also little later. Similarly, all the States were required to enact the respective State Goods and Services Tax Acts in their respective States, which also have been done These laws enacted by States are based on the model SGST law given by the GST Council in similar line with CGST Act. Pre-GST Taxes: In Pre-GST era State Governments were levying and/or collecting taxes such as Sales Tax (VAT), Entry Tax, Entertainment Tax, Luxury Tax etc. Similarly, Union Government was levying and collecting taxes such as Central Excise Duty, Service Tax, Additional Customs Duty, Special Additional Customs Duty and various types of Cesses in the nature of Excise duties/service Tax. Among them the major types of taxes on business transactions can be tabulated as follows: 4 P a g e

5 Tax Levied on - Collected by - State VAT Sales or purchases effected within the State Central Sales Tax Sales or purchases effected in (CST) interstate trade or commerce State Excise Manufacture of Alcoholic brewages in the State Central Excise Manufacture of Excisable Goods in India. Service Tax Providing of taxable service in taxable territory (India excluding J & K) Additional Customs On goods imported into India. Duties Respective State Governments State Government from where sales are done. State Government where manufacture happens. Union government Union government Union government GST Model: The highlight of the changes considering, GST model would be as follows: a) There are four types of Tax as follows: Type of Leviable on Supply of Goods or Services or Levied by Tax both SGST Supply within the State. Respective State Government UTGST Supply within the Union Territory. Central Government CGST Supply within the State. Central Government IGST Supply in the course of interstate trade or commerce. Central Government b) In other words, going by the types of transactions Type of Transaction (Supply of Goods or Services or both) Supply within the State (Same transaction will suffer both types of tax) Type of Tax SGST Levied by Respective SG 5 P a g e

6 CGST CG Supply within the Union Territory (Same transaction will UTGST CG suffer both types of tax) CGST Supply in course of interstate trade or commerce IGST CG Import of Goods or Services or Both IGST CG c) There will be mechanism between the State Government and Central Government for distribution of the IGST collected by Centre as per the recommendation by GST council (constitutional body to be created after amendment to constitution). From the business entity perspective this may not have direct implications. d) Taxes/Levies subsumed in GST: Central tax/levies Central Excise Duty Additional Excise Duties Excise Duty levied under Medicinal & Toiletries Preparation Act Service Tax Additional Customs Duty - CVD SAD of Customs 4% (SAD) CST (Administered by States) Surcharges Cesses Surcharges and cesses as far as they relate to supply of Goods and services State taxes / levies VAT/Sales tax Entertainment tax Luxury tax Taxes on lottery, betting & gambling State Cesses & Surcharges in so far as they relate to supply of goods and services Entry tax e) In addition to the CGST, SGST, UTGST, IGST as the case may be, there is an additional levy in the form of GST Compensation Cess on the above taxes for providing the compensation to States for loss of revenue due to implementation of GST, the said compensation cess is for the period of five years. The said cess is levied on supplies as may be notified by Central Government on the recommendation of GST Council. Accordingly, certain goods are notified like aerated waters, pan masala, tobacco and its products including Cigarettes and few types of Motor Vehicles. 6 P a g e

7 f) The levy of GST is on supply of goods, or of services, or both. The different aspects of taxation to levy and collect taxes like manufacture and removal of goods; sale of goods; provision of service; luxuries; betting and gambling, entertainment etc., are replaced by the concept of Supply of goods or services or both. Ambit of supply The taxable event under GST is supply of goods or services or both. The term supply covers within its ambit a. All forms of supply such as sale, transfer, barter, exchange, license, rental, lease or disposal, which are made or agreed to be made for a consideration by a person in the course or furtherance of business. b. As per the above, there should be both consideration and it should be in the course of furtherance of business. However, it is provided that in specified transactions as set out in Schedule I of the CGST/SGST Act, even where there is no consideration it would be considered as supply eg. permanent transfer of business assets on which ITC was availed; supply of goods/services between the related parties and within the same entity between two registrations obtained under GST; supply of goods between the Principal and Agent supplying/procuring on behalf of Principal. c. Further also it is specified that, inter alia, transfer of right to use goods; renting, lease, tenancy, easement, license etc., of land or building; Job-work; sale of under construction properties, temporary transfer of intellectual property rights, works contracts, transfer of right to use any goods and development, design, programming, upgradation, customization etc., of software, permitting the use of assets of the business for other than business use; supply of food and beverages for human consumption by way or as part of as services where such supply is for cash, deferred payment or other valuable consideration would be considered as supply of service. GST related to Specific Products: Though GST is to consolidate tax code on all products considering various political aspects of our country, certain specific products are dealt separately. The highlights of the same are as follows: 7 P a g e

8 a) Manufacture of alcoholic beverages for human consumption are kept out of GST. State Excise duty and Sales Tax/VAT would continue to be levied by the respective State Government. b) On the other hand, on Tobacco and Tobacco products Central Government would continue to levy Central Excise Duty in addition to GST. c) Levy of GST on specified Petroleum products are postponed till that time the GST council recommends for its inclusion in GST. Till then States would continue to levy Sales tax and Centre would continue to levy Central Excise duty. The specified petroleum products are as follows : i. Crude petroleum; ii. Diesel (HSD); iii. Petrol (motor spirit); iv. Natural gas; and v. Aviation turbine fuel Note: All other fuels and petroleum products other than these five would be covered under GST from the day one. Set off / Adjustment/ Credit: Main objective of the GST scheme is to avoid double taxation and cascading effect of different taxes levied by States and Centre. Therefore, it becomes essential that set off / adjustment / credit of all taxes paid on both goods and services which are received is available to be used against the liability to be paid on goods and services supplied. However as is put across in the GST law, such seamless credit set off/adjustment/credit have not been fully given effect and held back in certain cases. The set off mechanism is in the following manner; Type of Tax Paid SGST UTGST CGST IGST Input Tax credit (ITC) can be adjusted against (within the same registration) Adjusted against respective SGST and surplus if any adjusted towards IGST Adjusted against respective UTGST and surplus if any adjusted towards IGST Adjusted against CGST and surplus if any adjusted towards IGST Adjusted against IGST and if balance then against CGST and still balance remains against SGST. 8 P a g e

9 Note: CGST credit cannot be used to pay SGST and vice-versa. All eligible credits after the set-off and reversals if any can be carried forward without any limit. Enactments under GST: As per the GST scheme for levy of CGST and IGST law is formulated by Parliament for levy and collection of CGST and IGST respectively through enactment of CGST Act, 2017 and IGST Act, The tax also will be levied and collected by the Central Government. As far as UTGST Act, 2017 is concerned; it is also enacted by Parliament to be applied in Union Territory in place of SGST Act. Further GST (Compensation to States) Act, 2017, is enacted for levy and collection of Compensation Cess. These CGST, IGST, UTGST and Compensation Cess enactments will be applicable for entire country. However, from administration perspective the CGST or IGST credits of the respective sates have to be maintained separately registration wise (which will be one per State unless a person opts to have more than one registration if he has multiple business vertical). As regards to levy of SGST, each State has enacted the law for their respective States based on the model law formulated by GST council. The levy and collection will be by the respective State legislation. Unless the States follow the GST law in its true spirit, it may create disparities in the laws of different States, leading to different treatment of tax in different States. Rate of GST and threshold exemption limit: One of the essential aspects of GST is rate of GST. The rate of tax on goods under GST is generally based on Customs Tariff recommendations of the Council. They are based on Harmonic System of Nomenclature (HSN)wise coding, such classification is up to four digit coding. However, in certain cases six digit as well as eight digits is also mentioned to cover specific goods for identifying the applicable rates. As far as the rate of tax on services are concerned, scheme of classification of services are notified vide Annexure to Notification No. 11/2017-CT(R) dated 28 th June 2017 wherein the different type of services classification is provided with respective coding. Earlier these codes were nomenclated as SAC. However subsequently when the final law is framed, they 9 P a g e

10 have considered the same also as HSN code with first two digits starting from 99 and further digits are based on the services as listed in the said annexure to the notification mentioned supra. The rate (both SGST & CGST together or IGST, as the case may be) are Nil, 0.25%, 3%, 5%, 12%, 18%, 28% added with compensation cess on certain goods and services. The rates of taxes are notified vide different notifications like 01/2017-CT(R) dated 28 th June 2017 for goods, Notification No. 11/2017-CT(R) dated 28 th June 2017 for services. The rates are also available at official website The exports and supply to SEZ are considered as zero rated supplies whereby the supplier has option either to supply without payment of IGST by following the prescribed procedure or to supply with payment of IGST and claim refund. Against such supply/export, though no tax is paid, the benefit of input tax and refund of accumulated credit on inputs and input services will be available. As regards to threshold limit, it is fixed as 20 Lakhs on all India PAN basis and for the States of Arunachal Pradesh, Assam, J&K, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh & Uttarakhand it is fixed as 10 Lakhs. Unlike Central Excise or Service tax, the exemption limit is not for payment of tax, instead the threshold limit of exemption is for obtaining registration. Once registered for any reasons (either mandatory as per law or voluntarily) irrespective of the actual turnover, the registered person will become taxable person and will be liable to pay tax. In cases where an entity has a business both, under those specific States and others, they will be getting only 10 lakhs exemption. Composition Scheme*: For the person who has taxable turnover equal or less than Rs. 1 Crore (Upto , threshold limit was Rs. 75 lakhs) is given a composition scheme wherein the composition tax rate is fixed as follows: Manufacturer(Other than manufacturers of Goods as notified by the Government) - 2% (1% CGST & 1% SGST/UTGST) In case of supply of foods and beverages as service or part of service in any other manner whatsoever other than alcoholic liquor for Human Consumption - and 5% (2.5%CGST + % SGST/UTGST) 10 P a g e

11 In any other eligible cases (other than supply of service 1 ) - 1% (0.5%CGST + 0.5% SGST/UTGST) of the turnover in State or turnover in Union territory. The scheme will be subject to conditions and procedure set out in the Rules. Following are important points to be kept in mind in respect of composition scheme: a. Who effects any inter-state supplies is not entitled for the scheme; b. Person having business in different places and separately registered all of them should opt for composition scheme. In other words, a person cannot be in composition in one registration and outside composition in another registration. c. Person opting for composition scheme cannot collect tax; d. Person opting for composition scheme is not entitled to any input tax credit. e. For the migrated registered persons, there was option for exercising the same limit set. If it was not opted for then they have been given extended time upto to opt for the scheme. Registration: As regards to the registration, following points are to be noted: Any person who has aggregate turnover in a financial year (on all India PAN basis) more than 20 Lakhs (specified States 10 lakhs), then he is required to take registration in a State from where he makes taxable supplies. Every person who held a valid registration under the pre-gst laws as on the notified date is also required to be migrated to GST. In the following cases irrespective of turnover, registration has to be taken by a person: a. Making Inter-state taxable supply of goods (supplier of service is allowed to make interstate supply w.e.f ); b. Making Taxable supply being a casual taxable person; c. Who is required to pay tax under reverse charge; d. Who is an e-commerce operator where service tax is to be paid on reverse charge; e. Who is non resident taxable person and making taxable supply; f. Persons required to deduct tax; g. Who is e-commerce operator; 1 Service Providers are not given Composition Scheme benefit except in case of restaurant service. *Refer composition chapter 12 for more details 11 P a g e

12 h. Supplying goods of other person as an agent or otherwise; i. Who is an Input Service Distributor. j. Who supplies goods and/or services through e-commerce operator. k. Supplying online information and database access or retrieval services from outside India l. Being persons notified by Government in this regard. In case of transfer of business of registered taxable person under this Act as a going concern, the transferee is liable to be registered from the date of transfer/succession. Persons required to pay tax under reverse charge. In the cases of scheme of amalgamation or demerger by an order of High Court, the transferee is liable to be registered from the date on which ROC issues Certificate of Incorporation. In the following cases registration is not required even though they are covered under any of the above cases where they were required to have been registered - a. Supplier exclusively engaged in the business of supplying goods and/ or services that are not liable to tax or wholly exempt from GST. b. Agriculturist to the extent of supply of produce out of cultivation of land. c. Other notified person where Government gives exemption from registration. The person who is required to be registered has to apply for registration, within 30 days of becoming liable for registration in every State in which he is liable for registration. The procedure for registration is provided separately in other part of this booklet. Voluntary registration is also permitted. Registration shall be based on PAN, a TAN issued under Income Tax Act, Application for registration can be rejected, subject to giving notice of show cause and giving the person reasonable opportunity to be heard. Grant of registration under CGST is deemed to be grant of registration under SGST and vice versa. Registration has to be obtained State-wise and not on all India basis. However, within a State if there is separate business vertical, option is given to register the same separately. The taxability is determined based on registration treating them as separate entity for supply of goods/services. Separate registration will be accorded by State Government and Central Government in each State, with mutual co-ordination among them. Casual Taxable person and Non-resident taxable person 12 P a g e

13 Any person who occasionally carry-out any transaction in a State where he is not having place of business is treated as casual taxable person in that State. Similarly, if such person is not having any place of business in India, then he is referred to as non-resident taxable person. They are also required take registration in the State where they supply goods or services or both. They are required to apply for registration 5 days before commencement of business in that State. Other points in this regard are as follows: The registration is valid for 90 days and in case if any earlier date is specified in the application then it is valid till then. The 90 days can be extended by proper officer. Tax liability for such period has to be estimated and deposited in advance during submission of application. If extension sought additional tax liability to be paid on estimation. Amount deposited will be credited to electronic cash ledger and such an amount can be utilised for payment of tax liability. Cancelation of registration 1. Officer on his own or by receiving application from registered person may cancel the registration under following circumstances. The business has been transferred/ discontinued/ amalgamated/ De-merged/ disposed off. Change in the constitution of business. No longer liable to be registered other than person registered on voluntary basis. 2. Officer may cancel the registration including retrospectively under following circumstances after giving opportunity of being heard. Contravened the provision of Act or Rule. A composition dealer who has not filed 3 consecutive returns. A registered person other than composition dealer who has not filed 6 consecutive returns. Person who his voluntary registered but not commenced the business within 6 months from the date of registration. Registration obtained by fraud, will full misstatement or separation of facts. 3. The cancellation of registration will not affect any liability of the person to pay tax. 13 P a g e

14 Revocation of cancellation of registration. Revocation of cancellation of registration can be sought within 30 days from the date of service of the cancellation order. The proper officer may accept or reject the application after giving proper opportunity of being heard. Records and Returns: The records though to be maintained as per the needs of the business, since GST is technology based, all the transaction details relating to GST is required to be uploaded into GST portal on periodical basis. Though presently lot of practical difficulties are being faced for uploading of the returns, it is expected that the same would be resolved shortly for the success of GST implementation. Records to be maintained by a registered person: Section 35 of the GST Act, the taxable person should keep the books for the following transactions: 1. Production or manufacture of goods 2. Inward and outward supply of goods and/ or services, 3. Stock of goods, 4. Input tax credit availed, 5. Output tax payable and paid, 6. Such other particulars as may be prescribed. Apart from the above, the following records may also require to be maintained for other purposes: 1. Records for receipt of goods and services from registered person. 2. Records for receipt of goods and services from non-registered person + applicability of reverse charge (if any). 3. Import of goods bill of entry and other related documents. 4. Returns, payment challans, debit note and credit notes. 5. Financial statements. 6. Electronic records. 7. Bank statements and pay-in slips. 14 P a g e

15 8. Records for manner of computation of GST liability. 9. Records for availment and utilisation of credit. 10. Daily sales record along with sales invoices. 11. GST reconciliation statement (Workings vs Financials). 12. Electronic records of:- a. Tax liability register b. Credit ledger c. Cash ledger 13. Agreements. 14. Job work register. 15. Delivery Challans. 16. Security Register. Further, also there is requirement of matching of credits to the supplier s output tax to get the benefit of credit, otherwise of which the credit will be denied. Further, also the credit is not eligible unless the vendor deposits appropriate taxes into Government Exchequer. The credit is allowed to be added to the credit ledger as claimed by the registered person for the respective month. However, if supplier has not deposited tax or not filed returns, such credits will be added back to the tax liability along with interest in the subsequent month. This will add difficulties in business since they have to ensure compliance of their vendor to get the benefit of credit. Returns Every registered dealer is required to file return for the prescribed tax period. A Return needs to be filed even if there is no business activity (i.e. Nil Return) during the said tax period of return; Government entities / PSUs, etc. not dealing in GST supplies or persons exclusively dealing in exempted / Nil rated / non GST goods or services would neither be required to obtain registration nor required to file returns under the GST law. Filing of returns would only be through online mode. Facility of offline generation and preparation of returns is also available. The returns prepared in the offline mode will have to be uploaded. As against pre-gst few returns, number of statements and returns have to be filed in GST 15 P a g e

16 There is a common e-return for CGST, SGST, IGST, though information pertaining to the same are to be separately disclosed. A registered Tax Payer shall file GST Return at GST Common Portal either by himself or through his authorised representative; There is no provision for revision of Returns. Job work transactions The principal has the option to send taxable goods without payment of GST to a job worker and bring it back, after processing, to any of his own place of business, for supplying such goods on payment of GST or export it. The principal also has the option to directly supply final products to end customers on payment of GST or export from the premises of job worker itself, subject to fulfilment of applicable conditions. GST credit is allowed in case of direct receipt of inputs or capital goods by the job worker, subject to receipt of goods back by the principal within specified period. (One year for inputs, three years for capital goods other than moulds and dies, Jigs and fixtures or tools) - If inputs sent for job-work has not received back by the principal within 1 year it shall be deemed that such inputs were supplied by principal to the job-worker on the day when the said inputs were sent out. - If capital goods sent for job-work has not received back by the principal within 3 years. It shall be deemed that such capital goods were supplied by principal to the job-worker on the day when the said capital goods were sent out. - If the job-worker is registered, or the principal has added job-worker place as additional place of business, if job worker is not registered may dispatch the scrap or waste from his place of business on payment of tax. Assessments, audits and demands Assessment means determination of tax liability under this Act and includes selfassessment, re-assessment, provisional assessment, summary assessment and best judgment assessment clause 2(11) of CGST Act, Hence the scheme of separate assessments, audits and demands existed under erstwhile different acts are going to go and only one assessment, one audit and one demand notice under GST law would come into force. The tax administration would have powers to audit and re-assess the taxpayers on a selective basis. 16 P a g e

17 The Commissioner of CGST/Commissioner of SGST or any officer authorised by him, by way of a general or a specific order, may undertake audit of the business transactions of any taxable person for such period, at such frequency and in such manner as may be prescribed. Special audit by Chartered/Cost Accountant can be ordered if the officer is of the opinion with prior approval of Commissioner. Overall Impact a) Change in law and procedure: Since it is a major indirect tax reform in India, there would be new legislations and procedures. The entire indirect tax code will be a new one. b) Change in tax-rates: The standard rate of 12.50% for central excise, service tax, along with residuary rate of VAT at % brings the overall rate to 25%-30%. When the tax rates are increased it could lead to tax evasion as well. But, post GST, it is in the range of 5%-12%-18%-28%; a net gain of almost 2%- 6%-10%. Most of the dealers and consumers would experience the change in tax rates, either significantly or marginally. c) GST based on HSN: The central excise tariff based classification would no longer be applicable. GST will be based on HSN It will reduce the interpretational issues in respect of class of commodities. d) Nearly Seamless Availment of tax credit: GST will facilitate seamless credit across the entire supply chain and across all States under a common tax base. Earlier no cross credit were available across central excise/service tax to local VAT/sales tax. Under the GST law, the input tax credit (ITC) (set off) is given for interstate taxes like IGST Central GST against CGST and the States will give input tax credit (ITC) SGST to SGST. Crossutilization of credit between Central GST and State GST will not be allowed. e) Credit availment based on vendors invoices: The credit of excise duty paid is available based on the excise invoice raised by manufacturer or service provider. The credit was available under the Service Tax law when the payment of invoice made within 3 months of invoice date. In respect of joint charge and reverse charge, based on receipt of payment basis on basis of payment challans of the assessee. Under State VAT law, it was allowable on the basis of tax invoice. Under GST the credit is to be availed based on the invoices of vendors under CGST and SGST. 17 P a g e

18 f) Avoidance of Double Taxation: Earlier, several transactions suffered VAT as well as Service Tax such as in case of works contract or licensing of software etc. This is partially resolved in GST by redefining what is goods and service. g) Changes in the Accounting Software: Dealers and service providers need to modify/replace the accounting and taxation software. Though initially there could be investment costs, costs of training in GST of people at each level starting from junior/mid to higher level managerial staff, management group/stakeholders. h) Training: Comprehensive training will be required to the staff members of the business community, both at senior level and also at junior level. Further, the scope of such training should be extended to the marketing personnel, apart from accountants and legal department. i) Competent Professionals: There are specialized consultants for Excise Duty, Service Tax and VAT. With the GST, only a single consultant maybe required who can handle all GST matters. Compliance for the SME may necessitate competent tax preparers who are semi qualified. j) Amending existing contracts: Assessee has to put a clause to collect CGST and SGST extra as applicable in respect of existing contracts. 18 P a g e

19 2. Determination of GST liability Introduction: Under the GST regime, tax is attracted on supply of goods or services or both. Though initially it was the understanding that there will not be difference between goods or services later on implementation, there is clear distinction made as to goods and services. Further for determining taxability or identifying the tax payable, there are different aspects like location of supplier, time of supply, place of supply, rate of tax, which needs to be determined. Since there are different aspects which need to be worked on the question arises as to what is the sequence which needs to be adopted for determining the GST liability. In this background attempt is made to provide for a sequence to proceed for determining the tax liability. Sequential steps to determine the GST liability 1. Identification of Supply 2. In the GST regime, the taxable event will be Supply of Goods or Services or both. The term Supply is much broader than earlier taxable events i.e. Manufacture, Sale of goods and Provision of service etc. Supply includes all commercial supplies such as Sale, Transfer, Barter, Exchange, License, Rental, Lease, Disposal etc. In GST law, it is not necessary that Supply should be there from one person to another, i.e. even self supplies within the entity also come under GST net. Further the law provides a list of activities/ transactions whereby even if no consideration is charged the transaction will be treated as deemed supply that means liability to pay GST will still be there. For instance, if a company situated in Jaipur sends some of its assets (stock or otherwise, on which ITC was taken at the time of purchase) from its Jaipur office to its Mumbai office to be used there, the liability to pay GST will arise on such transactions, despite the fact that neither there were two persons involved nor any consideration was there in such transaction. Thus, the first and the most important step in identification of the GST liability is identification of existence of supply. However, while doing so, one has to also keep in mind what the law specifically excludes to be considered as supply (set out in Third Schedule to CGST Act). Similarly, the charging section also excludes levy on certain goods like alcoholic beverages for human consumption. 2 Please refer chapter 4 i.e., levy and supply for more details 19 P a g e

20 Accordingly, one has to first identify whether the transaction in question is a supply and are not excluded from the levy. 2. Identify whether supply is of goods or service 3 Identification of goods or service is vital to understand rate of taxes, classification, time of supply etc. However, in commercial parlance the transaction would not all the time be only supply of goods or only supply of services. Example: Suppose a car is given for service, car is a goods and the activities of maintenance and repair is a supply of service. In such a scenario, where the transaction is combination of both goods or service or multiple goods and/or multiple services, it is essential to identify the entire transaction into either goods or services. For this purpose, section 8 of CGST gives guidelines wherein, based on composite supply or mixed supply the entire supply transaction has to be frozen into one of the element of such combined services. Eg. In the above example, since the service is composite supply, the main intention needs to be considered to determine whether this is a supply of good or a supply of service and also all other services should be merely ancillary to the main supply. Since the main intention of the activity is that of servicing the car, and the goods used therein are ancillary to the same, the entire transaction has to be treated as supply of service of car servicing. However, in case of mixed supply, it is relevant that each of the elements of goods or services has to be identified, each of the said goods or services has to be classified under the appropriate heading and identify the applicable rate of tax under GST. After that the element which attracts highest rate of tax has to be frozen and the entire supply would be treated as such supply, whether goods or service. 3. Identification of place of supply 4. Under GST, tax would be levied on goods / service based on place where the supply of goods or service takes place which would generally be as per the destination 3 Please refer chapter 4 i.e., levy and supply for more details 4 Refer chapter 6 on Place of Supply 20 P a g e

21 based principle. The tax would accrue to the State of destination. The place of supply is outside India, it would not be liable to GST. Such service could be said to be an export where the further conditions are complied. There are separate provisions for identifying place of supply for goods and place of supply of services. Further within that there is further classification as to whether it is within India or international transaction. Accordingly applying relevant provisions, the place of supply has to be identified. 4. Identify whether it is inter-state or intra-state Identification of the location of the supplier and place of supply To determine whether it is an inter-state or intra-state supply, the location of the supplier and the place of supply needs to be seen. Supply of goods or supply of services where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-state supply leviable to CGST/SGST. Likewise, where the location of the supplier and the place of supply of goods are in different States or Union territories, the same shall be treated as inter-state supply leviable to IGST 5. Classification 5 - In case of mixed supply classification becomes important even to identify whether supply is goods or service, whereas in case of only goods or only services or composite supply identified with principal supply, classification of such goods or services has to be made since there are differential rates applicable to goods and service and also there are different tax rates within goods and services. Further also the exemptions would be linked to classification, it would be essential to whether there are any exemptions available. The classification of a product is required to be determined on the basis of Harmonized System of Nomenclature (HSN) which is issued by World Customs Organization considering the headings, sub-headings, sections notes, chapter notes. 6. Identification of rate of tax - One of the essential aspects of GST is rate of GST. Notifications are issued setting out the rate of tax. Presently under CGST Act, 5 Refer chapter 5 for more details on rate and classification 21 P a g e

22 Notification No. 1/2017 CT(R) dated as amended gives rate of tax for goods and Notification No. 11/2017 CT(R) dated as amended gives rate of tax for services. Based on the same, one has to determine the applicable rate of tax. 7. Whether there is any exemption 6 - Levy of GST is attracted on supply of all goods / service or both. The Central or State Government is empowered to exempt certain goods/service from the levy of GST. Such exemptions are need based and intended to serve public interest. While non-compliance of procedural conditions may be relaxed, substantive conditions need to be mandatorily fulfilled. Further, in case an exemption is absolute (ie, unconditional), availment of it is mandatory and the assessee has no option to pay tax. 8. Identification of Time of supply 7 Time of supply would signify the point of time when the levy would be attracted. It is very important to arrive at the time of supply of service. The liability to pay CGST/ SGST on goods or services shall arise at the time of supply as determined in terms of the provisions of the Act. 9. The value of goods or service 8 Once it is settled that tax (GST) is to be paid, and what time it is to paid and which tax (IGST or CGST/SGST) is to be paid the next question that arises is at which value the tax is to be paid. Normally GST is to be paid on the Transaction Value that is the actual price of supply. Section 15 of the CGST Act deals with value of taxable supply. The provisions of this section need to be applied to determine the correct value of goods or services. Conclusion: The GST regime continues to promote the scheme of self-assessment. Hence every registered taxable person would be required to assess his tax dues in accordance with the provisions of GST Act and report the basis of calculation of tax dues to the tax administrations by filing periodic tax returns. 6 Refer chapter 9 for more details 7 Refer chapter 7 for more details 8 Refer chapter 8 22 P a g e

23 Thus, to assess and disclose the correct tax dues, it is important to follow the above mentioned sequential steps to determine the correct GST liability and be a tax compliant assessee. 23 P a g e

24 3. Impact of GST on manufacturer, trader, service provider including managing vendors: GST law in India is Dual GST. The Central Government and the State Governments will levy GST concurrently on a common base value. There will be no distinction between goods and services for the purpose of imposition of tax. In this segment it covers: Impact on Manufacturers Impact on Service providers Impact on Traders Impact of GST on Manufacturers Manufacturing sector has been given prime importance by the present Central Government and Make in India program is one example for this. It is no wonder that such schemes along with GST could bring India on the world map as hub for manufacturing. According to few reports, India is among the top ten manufacturing countries in the world and presently the sector contributes around 10% of our Indian GDP. The GST law which has replaced the earlier indirect tax laws from 1 st July 2017 could have huge positive impact on manufacturing sector in India. The important functions which would have impact on manufacturing sector under GST are as follows: 1. Sales and Services 2. Purchase 3. Finance and Accounts 1. Sales and Services Following are the important aspects to be considered to understand the impact of GST on Sales and Services. a. Reduction in price of most categories of goods for customers Standard rate Most of the goods manufactured and sold by manufacturer in India was liable for Central Excise duty at around 12.5% along with VAT at standard rate of around 15%. The total tax was around 26-28% on sale of goods. If we add, other costs such as entry tax, CST restriction etc, the cost would be even high in earlier taxation system. Adding credit restriction, CST purchases etc, the tax cost would substantially increase. 24 P a g e

25 In GST regime, the final tax payable is around 18% to 28% thereby reducing the tax burden on customers. This would put the manufacturer in better position to negotiate the price after considering the tax factor. Marketing team could make use of the reduced tax burden for fixing the price in better manner. b. Increase in price of few classes of goods for customers earlier under Concessional rate From the earlier example, we understood how the final price of goods would get reduced in GST regime. However, this may not be true in case of all goods. There are certain goods like corrugated boxes, packing materials which were manufactured by small scale industries who were claiming SSI exemption upto Rs 150 Lakhs pa, where no excise duty was being paid, thereby avoiding excise duty on value addition. Further these goods are eligible for concessional / lower rate of VAT of around 5% in most States in India. This scenario would arise even in case of goods which were eligible for concessional excise duty levy of say 6% and VAT of around 5 to 6%. In these cases, the final price of goods would get increased to the customers as they could end up paying 18% GST. Impact would be high especially when customers are final consumers. It may be noted that in the initial years most of these goods are covered under merit rated of 12%. In such a scenario, it would be very critical for manufacturers to plan for GST impact on sale at the earliest by ensuring that their procurement is also tax efficient. c. Change in price of goods Excise duty / VAT exempted There are goods like agricultural implements, solar energy goods which were exempted from excise duty and VAT. There are other goods which were exempted from excise duty but liable for VAT or otherwise. In these scenarios, the tax burden under pre-gst indirect tax system was 0% to 6%. Even if we consider that such goods are presently 12% under GST, the tax rate would be around 10% resulting in increase in price of goods for the customers. This would definitely pinch the final customers and could create resistance in buying goods. However, in GST regime, many exemptions either under VAT / Excise provisions which were being enjoyed are not continued. Therefore, the manufacturers would be liable for payment of GST at applicable rates with benefit of full credit of GST paid on inputs and input services. d. Reduction in procurement costs to manufacturers: 25 P a g e

26 It was expected that there will be reduction in tax rates for most goods from earlier effective 30-32% to 12-18% range would in turn reduce the costs of procurements of materials to the manufacturers substantially. However, at the transitional period, this may not be workable since the suppliers of goods/services are not clear as to their position under GST and their pricing. With proper planning of credits and cost involved, final price of goods has to be revised to ensure that benefits of reduction in costs are passed on to customers and the customers are not burdened with more taxes. This is more so in case of B2C supplies where the end customer cannot avail credit of taxes paid on supplies of goods. Even in case of VAT composite tax dealers who would be taxable in future under normal scheme of taxation under GST, the impact could be similar. Explained in detail in next segment on purchase and expenditure. e. Increase in cost of services for final consumers In GST regime, the cost of pure services for final consumers would definitely increase as the rate of tax would be around 18% as against earlier service tax rate of 15%. However, considering the fact that there would be seamless credit in GST regime, the manufacturers who are also service providers would be eligible to claim the credit of taxes paid on inputs-goods/input services which are used. Such benefit of reduction in actual outflow of taxes due to input tax credit should be passed on by the suppliers to customers. f. Discount schemes to be relooked into There could be various types of discounts such as cash discount, trade discount, seasonal discounts, quantity discounts, target discount etc. Under the earlier indirect tax laws, the discounts allowed to customers would be eligible for deduction mainly: a) When allowed as a regular practice or it is in terms of agreement entered. b) When the discounts are disclosed on the invoice. There have been decisions allowing deduction of post removal discounts only when the discounts are linked to specific invoices through which goods are cleared. However, in GST regime (Section 15- Value of taxable supply), discounts allowed at the time of supply would be eligible for deduction. However, the post supply deduction would be allowed for deduction only when: 26 P a g e

27 a) Discount is established as per the agreement and is known at or before the time of supply b) Discounts are specifically linked to relevant invoices: It is not compulsory to disclose the discount amount on the invoice in GST regime. Therefore, the discounts would be allowed even if discounts can be linked to specific invoices. In this regard, proper planning is required in framing the discount policy in such a way that the same could be linked to invoices. c) Input tax credit has been reversed by the recipient of the supply as is attributable to the discount on the basis of document issued by the supplier g. Decision on continuation of multiple depots / sales offices / branches Most manufacturers have set up sales offices / depots / branches which could be on account of tax planning, catering to regional market etc. In some cases, it may have been due to Just In Time (JIT) concept adopted by the customers. The tax planning could have been made considering levy of CST, different rate of VAT in various States for same products. There would be levy of GST on all supplies including stock transfers to branches / depots / sales offices and such tax payment shall be eligible for credit. Earlier, CST paid credit was ineligible. Due to this, depots may be done away with and costs of depots set up/storing/handling may come down as well. Savings by way of set off of the input tax credit on IGST + economies of supply chain could be passed on to customers. Considering these factors, decision has to be taken to continue / discontinue such additional place of business. The other factors to be considered in decision making are as follows: a) Cash flow involved on account of GST levy on stock transfers; b) Transportation cost involved in sending goods to depots and sale there from; c) Administrative cost like rent, office maintenance staff etc. for additional places; d) Cost of compliance in each location under GST like payment of taxes, filing returns; h. Arrangement with dealers / consignment agents In case of entities which have appointed dealers / consignment agents, there is a need to relook at the agreement clauses. Under the earlier laws, the goods could be transferred without payment of any taxes. However, in GST regime, the supplies including transfers would be liable for GST. Schedule I lists out the matters to be treated as supply even if made without consideration which includes supply of goods by 27 P a g e

28 a. By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or b. By an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. Such dealers / consignment agents would be treated as separate taxable persons for GST purpose. However, the taxes paid on inward supplies would be eligible as credit for such dealers or agents. For initial period, the cash flow would be high for the manufacturers on account of such transfers. Considering all these changes, there is a need to educate dealers / agents. i. Cheaper exports and impact on Form H purchases Even under earlier tax regime, most of indirect taxes paid like excise duty, VAT, service tax in relation to export of goods is eligible for either exemption or refund. The exemptions / refund are resulting in cheaper for exporters. In GST regime, manufacturers could expect even cheaper exports due to following factors: a) Taxes like CST paid on procurements would not be a cost in GST as all taxes paid on procurements are either eligible for credit or refund. b) There would be no levy of entry tax. c) Number of forms and compliance expenses involved earlier, like obtaining exemption certificate from excise department, filing multiple refund applications would get reduced. d) Faster refunds are expected under GST as compared to earlier refund schemes. Earlier schemes were dead slow and expensive as it involves satisfaction of VAT officers / service tax officers / Excise officers. Sales / marketing officers could consider these factors for the purpose of pricing of goods. Cheaper goods would make exports even more competitive. j. Tax savings due to various other factors As already explained earlier, there would be savings in cost of materials on account of noncascading effect of taxes in GST as compared to earlier indirect taxation. Following factors to be considered by sales / marketing in fixing / negotiating the final price of goods: a) Seamless credit on all purchases / services procured reducing cost of production. b) Savings on account of non-reversal of VAT credit in case of interstate stock transfers. c) Savings on account of non-requirement to pay entry tax. 28 P a g e

29 k. Proper tax clauses in sale agreement / contract There is a need to provide clause in sale agreement / contract considering the GST factor. This would be more relevant in case of open purchase orders from customers. Contracts / agreements / orders entered before introduction of GST could include the clauses stating that In addition to price, taxes applicable such as GST as the case may be to be collected extra. If any contracts have been entered which are inclusive of taxes, then special care has to be taken to safeguard the interest of the business as the GST rate would be around 18%. Ignorance of the tax clause could end up with additional cost to business. l. Training of marketing / sales officers After going through all the above points and the GST law which is new, training of marketing / sales officers would be crucial in any business environment. With better knowledge of GST, marketing / sales team would be in good position to deal with prospective customers. When the sales team knows the GST rates and the net tax costs after set off of input tax credit, they could look at reducing the price offered to customers. Example: If Sales team of A Ltd knows that GST rate is 18%, instead of earlier rate of 12.5% (excise duty) and 14.5% (VAT) on goods manufactured and removed by A Ltd, then with respect to reduction on rate after adjusting input tax credit, say 5-6%, may be reduced from price of goods sold by Sales team of A Ltd. This could make the supplies more competitive leading to bagging more orders. 2. Purchase and Expenditure a) Increase in initial cash outflow The standard rate of 18% GST on goods and services would have an impact (negative & positive) on the initial cash outflow. Let us understand the impact from below example with standard rates: Goods Pre-GST IDT GST Value 100 Value 100 ED 12.5% 12.5 CGST 9% 9 VAT 14.5% SGST 9% 9 Total Total P a g e

30 Services Pre-GST IDT GST Value 100 Value % 15 CGST 9% SGST 9% 9 Total 115 Total 118 From above example, we could understand that cash outflow would reduce in case of purchase of goods and increase in case of procurement of services. In case of goods which are presently enjoying the benefit of concessional rate of tax wherein overall tax rate is less than 10-12%, the cash outflow could increase. There could also be a scenario where earlier goods were exempted but are now taxable in GST regime leading to extra cash outflow. As credit of duty paid can be availed, the cash outflow would be effectively lesser in case of B2B transactions. However, in case of B2C transactions, the customer has to bear the tax burden under GST. Proper planning for purchases by procurement department is essential considering various factors. Few of them could be as follows: a) Requirement of revision of EOQ levels based on cash flow impact and orders on hand if any. b) Negotiation of price with vendors due to reduction in cost of supplies of goods for manufacturing sector. c) Revision in purchase / procurement budgets. d) Ensure purchases made from vendors who have proven track record of paying taxes on time to ensure there is no disallowance of input tax credit availed on procurements. b) Reduction in Cost of material purchased Almost 60% to 70% of total production cost would comprise of material cost in many manufacturing business. Most of the manufacturers procure required inputs either from manufacturers or dealers located within State or outside State. There could be reduction in cost of materials in GST due to following points discussed: 30 P a g e

31 CST payment When excisable goods are procured, there would be levy of sales tax even on the excise duty amount leading to cascading effect. If the sales tax is in form of VAT, then there is an option of input credit. However, when CST is paid, the same would be ineligible for credit increasing the cost of materials procured. Under GST, there would be no concept of CST, instead IGST would be paid on inter-state supplies. The credit of IGST paid shall be allowed as credit thereby reducing the tax burden. Entry tax payment In case of few States like Karnataka, Orissa, West Bengal, there is a levy of entry tax on specified goods entered into the State. In Karnataka, the entry tax rate is 2% on machineries and its parts. On petroleum products, the levy is 5% on purchase price. The entry tax paid is not eligible for input setoff as well. This levy is increasing the cost of materials procured. In GST regime, abolition of entry tax would result in decrease in cost of procurement. Procurement from non-excise dealers In case of goods procured from dealers other than first / second stage dealer, buyer can avail only VAT credit. Dealer would have procured goods from manufacturers / imported on payment of duties. If the dealers are not registered under excise and not passing on the benefit of taxes paid, then the same would add to purchase cost. In GST, this scenario would not arise as dealers would be eligible to take all credits. Earlier dealers who were not registered as dealers under central excise were passing on the costs of taxes on imports [mean rates as follows-bcd10%+customs cess 3%+12.5%CVD+4%SAD= say 29.5%] and/or domestic procurements (mean rate-12.5%excise duty) and collecting and paying output VAT after setting off input VAT. In GST, they can get the credit of tax paid on imports-igst could be say total 18% [BCD cost say 10% would still continue] and domestic procurements-cgst+sgst say 18% and paying net output GST tax. The savings due to set off ranging from 19.5% on import and 12.5% could be passed on to customer. This would reduce procurement cost to manufacturers who purchased from non-excise dealers in past. Purchaser can take GST credit based on dealer invoice. This will reduce the effective cash outflows and effective purchase cost of inputs. c) Eligibility of credit on interstate purchases 31 P a g e

32 Goods purchased from manufacturers or dealers from other States are liable to CST at the rate of 2% with C form or equal to local VAT rate. In the earlier IDT system, the CST paid is not eligible for credit. In GST, the supply of goods and or services in the course of interstate trade or commerce is liable for IGST. The amount paid by the purchaser towards IGST can be claimed as input credit. This would reduce the procurement cost for manufacturers. d) Tax levy on purchases / procurement from unregistered dealers On goods procured from unregistered persons, there is a need to pay VAT in all the States which would be eligible as credit provided the goods are used in relation to saleable goods. In GST regime, number of unregistered dealers would get reduced substantially due to lower exemption limit. There could be a GST payable under reverse charge by recipient on procurement of specified goods. Also there could be GST payable under reverse charge by recipient on procurement of specified services in GST regime. Credit of GST paid under reverse charge could be available to the recipient of such goods and or services. e) Procurements from composition dealers to be avoided Under the VAT regime, the tax paid on purchase of goods from composition dealers would not be eligible for input credit. In most States, the composition VAT cannot be collected from the buyers. In such a scenario, the cost of procurement of goods would increase to the buyer of goods. Even in GST regime, the composition scheme would continue with a minimum tax of 1%. The tax cannot be collected by the seller and therefore, there is no question of credit for the buyer of goods. However, due to ineligibility of credit on purchases, the cost of sales for composition dealer would increase. There is a need to reduce / completely avoid procuring goods from composition dealers in GST regime. However, this decision should be taken considering other factors such price of goods, necessity of goods etc. f) Screening of suppliers The credit of excise duty and VAT (though questioned in few States) paid on purchases would be eligible as credit if goods are received and put to use in business. Generally, it is not the responsibility of the buyers to ensure tax payment by the suppliers to the Government. To this, there are exceptions in States like Delhi and Tamil Nadu where the credit of VAT would not be eligible for the buyer of goods unless the taxes are paid by the seller to the Government. 32 P a g e

33 However, in GST regime, the credit would be eligible for the buyers only if the suppliers have paid their taxes properly which is applicable to all the States. The concept of matching credits has been introduced. Any default in tax payment by the suppliers would make the buyers ineligible for credits. Therefore, screening of suppliers would be critical. Black listed dealers / suppliers should be avoided. Dealers who do not issue proper invoices should also be avoided by the manufacturers. Procurements from high GST rating vendors Vendor Compliance Rating Score is an important criterion for vendor selection. Every company who is willing to purchase goods, can at the time of getting quotation, can also see the vendor rating and purchase the goods. Purchase done from highly rated vendor, will assist the recipient in - Filing of timely returns by vendor - In time supply (GSTR-1) upload by supplier, on which auto credit will be reflected in recipient GSTR-2 to avail such credit. - Ease of business - Timely payment of taxes by vendor under GST g) Increase in cash outflow on services -Planning Pre-GST, the services procured were liable for ST of 15% including cess. In GST regime, the rate of GST could be around 18% resulting in extra cash outflow. Proper planning is required to procure and clear the payment for the services. The payment for services which are ineligible for credit in GST regime should be cleared first to reduce the cash outflow. h) Requirement of credit distribution In case of common services like statutory audit services, consultancy services received, the credit of service tax paid needs to be distributed to respective units under the pre-gst regime. Even under GST, the situation would continue. However, distribution of credits, compliance with legal requirement could take substantial time. Therefore, with proper planning, the vendors to be instructed to issue separate bills if possible. The place of supply would also be critical in GST regime. Any mistake in place of supply in the invoice could result in denial of credit for the manufacturers/service providers. 3. Finance and Accounts 33 P a g e

34 Understanding the business is important. Through websites, audit reports. IFC process flow could be important source of information to understand the business. SOP could be of great use. The following issues could be of much importance: Accounting entries for IDT compliance Planning of cash flow impact Make aware of GST implementation cost Impact due to requirement of multiple returns Impact on budgets Sales & Purchases Impact in investment in securities Need for training vendors / suppliers Requirement of compliance under TDS / TCS provisions Revision of SOP System of accounting for purchase returns / sales returns Steps to be taken for issue / collection of Form under GST Training for staff under GST Hiring of additional staff if compliance is increasing Status of pending litigations and action to be taken Changes in formats and reports such as tax invoice, BOS etc. 4. Other Impact on Manufacturers a. Competitive in market: There would be a saving in taxes due to less or no restrictions in taking setoff of taxes paid at various stages of manufactures reducing the cost of goods sold. This would make them more competitive both in domestic and international markets. b. Valuation of the supply of goods: Pre-GST excise duty is paid on the event of manufacture of excisable goods and VAT on the sale of goods. VAT/CST is computed on sale price+ excise duty paid. With the shift of taxable event from manufacture to supply of goods, the valuation of goods could be simplified. Under GST, actual value received as a consideration for the supply of goods would be subject to GST. c. Reduce Corruption: Due to online filing of returns and statements, and consequent reduced interaction with dept, the corruption faced by the manufacturers would substantially reduce over a period of time. d. Transaction costs: The transaction costs of compliance could reduce due to widespread computerization and online filling and filing of forms/payment of taxes and returns. 34 P a g e

35 However, the huge need to upload all transactions may lead to the compliance cost for medium sector to rise and for small sector it may not be bearable. Manufacturers under administration of State VAT officials: Manufacturers having a value of clearances of less than Rs 150 Lakhs were exempted under Excise law. The States are to administer the Central GST of 90% dealers having gross turnover of less than Rs. 1.5 crores and remaining 10% will be administered by the Centre. 50% of the other dealers will be administered by the Centre and the balance will be by the State. Impact on Traders: a) Tax on value addition: The impact of tax on the wholesaler or retailer would be limited to the value addition. The tax paid at earlier stages (except SGST of other States) would be available as set off for payment of GST on supplies. Therefore, traders would prefer to buy/receive supplies with invoice. b) Reduce cascading: Cost of products and services would reduce due to eligibility of credit of central excise and service tax and there by reduction in the cascading effect of tax being reduced. c) CGST & SGST levy: CGST &SGST is levied on the local supply of goods within State. IGST (comprised of CGST and SGST) would be levied on interstate supply of goods. CST Act is subsumed in GST. d) No subsequent sale or sale in transit under the CST Act against Forms E-1/2: This exemption as per section 6(2) of the CST Act is not continuing under GST levy and all transit sale will be liable for GST. e) Stock transfers: Pre-GST, stock transfer was being done without charging CST against Form F. Under GST law, stock transfers from one State to other to one s branch or consignment agent will be treated as inter-state sale and tax levied thereon. However, such IGST on the interstate stock, will be eligible for credit. f) Stock transfers to branches/consignment agents within the State: Under GST, these transfers could also be levied to tax, unless the GSTN number of transferor and transferee is same. g) Eligibility of the credit on input service: The trader shall be entitled for the credit of the GST paid on the various services, which under the earlier law was becoming a tax. Thereby the pricing of the product would reduce. 35 P a g e

36 h) Tax to be paid on Advance: The trader was paying VAT only on the confirmation of the same, however under the GST regime; tax needs to be paid earlier of receipt of advance of completion of supply. This increase the effect of the cash flow. Impact of GST on service sector GST is not just a tax reform but it is a business reform. It shall change the way in which business processes are performed and the way in which the business transactions are undertaken. Although, GST will bring with it, both positive and negative aspects. However, the organizations that will plan its business processes better in a manner to best suit the needs of the GST regime, then such organization will have competitive edge over others. Therefore, it is of due importance that business house proactively re-structure its business processes and optimize its tax position to reduce the negative impact of the changing tax environment. So far as service sector is concerned, below is the brief of the impact that the GST is going to have on the service sector: The major areas of impact of GST on service providers are under: GST Rate The service sector was taxed at the rate of 15% including Swatch Bharat and Krishi Kalyan Cess (KKC). The general GST rate is fixed at 18%. This means that there will be an impact on the services which will become costlier by the differential tax amount from the current levels. All the continuing /ongoing contracts have to suffer the increased rate in respect of work completed after appointed date unless covered under concessional rate and/or input tax credit which was earlier not available is available under GST. International competitiveness Competitiveness of India s service exports has increased over time but gets partially impeded due to certain domestic constraints. One of such constraining factors refers to inefficient indirect tax regime. The following factors may affect the India s International competitiveness; Cascading tax Not getting full offsets by way of credit Origin based taxation Delay in refunds etc. 36 P a g e

37 With the introduction of GST which is going to be consumption based destination taxation, seamless credit objective and simple payment, return and refund procedures etc such constraints would recede over period, leading to increase in export of services. Input tax credit The main objective of GST law is to give seamless credit by not putting restrictions. Service providers are eligible for credit of VAT portion on his purchases hitherto not eligible. The law sets out that every registered taxable person who carries on any business at any place in India/State shall be entitled to take credit of input tax admissible to him which shall be credited to the electronic credit ledger of such person. Payment of IGST Service provider has to pay the IGST on interstate supplies. It could apply even for services between head office and branch vice versa if they are situated in different States. This could be one of the draconian provisions under GST. Further import of services shall be liable to IGST under reverse charge mechanism. Supply includes import of services whether or not for consideration whether or not in the course or furtherance of business. Time of Supply This will be helpful for determining the time of supply of goods and / or services under GST law. The provisions of time of supply under GST are more or less similar to earlier POT Rules, Place of Supply Section 10 and 11 of IGST Act, 2017 is for Goods and for service 12 and 13 of IGST Act provides the place of supply, which are similar to erstwhile place of provision rules, These are useful to determine the place where the services are deemed to be supplied. Earlier there were no specific place of supply in case of goods but in GST regime it is specifically provided and in some case deeming fiction has been created, further, determining the place of supply under GST is going to be very cumbersome. Reduction in cost With the introduction of GST the cost of procurement of services may be reduced due to seamless credit, no cascading of taxes and reduced prices by the vendors. 37 P a g e

38 Transaction value GST shall be payable on transaction value of supply of goods and / or services. Transactions with related parties/ group companies needs to be properly valued Valuation issues may creep in this regard. No Disputes around Goods v/s Service Previously service providers were faced difficulty in identifying what is service and what is a goods and getting notice from both service tax and VAT /CST departments. Assessees paying service tax were getting notices from VAT / CST department and the assessees who were paying VAT /CST were getting notices from service tax department. With the introduction of one single GST on supply of goods and /or services including Schedule II, GST put an end to the double taxation of services like software etc. which were treated as goods and services both. Other Impact on Service Providers a. Destination based to consumption based levy: Service tax was levied at origin and was a destination based levy, the burden of which is borne by the end customer. Under GST, they would be taxed at the place of consumption. b. Service tax-sgst levied by States: Under GST law, the tax on service is levied not just by Centre but also by the States who is empowered to levy SGST by amendment to the Constitution of India. c. Taxes received by consuming State: If services are rendered from one State to another, then tax would ultimately go to the consuming State as GST is a destination based tax. Managing procurement vendors As prices are expected to come down in GST regime, every customer would like to procure goods/services at a cheaper price. In this aspect, purchase department of an organization has to be more proactive to manage their procurements/ suppliers better and to crack a better deal from their vendors. GST is nothing but an opportunity for the purchase department to enhance their vendors list and negotiate; this aspect is being discussed below in detail as under: Vendor masters updation, Tax master updation Now, the first and foremost important task is to update the vendor masters and tax masters with the additional information based on the structural changes and the tax changes performed by each businesses in the GST regime. 38 P a g e

39 Vendor Performance/ compliance It is very important that every supplier has to comply with GST, as the concept of compliance rating in the GST regime will be playing a crucial role. It not only defines the compliance status of the business but also has an impact on the business, either positive or negative. Suppose if compliance rating is low on scale either because of delay in payment of taxes or invoices etc, then the customer would think twice before transacting a business with such vendors. Further, an important aspect in GST is that tax credit to the purchaser is linked with that of tax payment of such taxes by the vendor. Unless, the vendor pays the taxes on supply of the goods/ services, the customer will not be entitled to take credit of such supplies. If supplier has not remitted taxes, then GST becomes cost to buyer and in turn, price of his supply would substantially go up which would affect the market. Further, if there is any delay on account of vendor in remitting taxes, then the buyer can take credit of taxes only after discharge of taxes by supplier. Till then, buyer has to wait for the payment by supplier. This becomes a big challenge to the business to follow up with the supplier for taking credit. Therefore, procurement department needs to assess their current vendors and the unorganised/ non-compliance oriented vendors must be trimmed down. Identifying multiple new vendors As GST is a united indirect tax and since it will change the entire dynamics of the businesses, therefore prices of almost all the businesses will undergo a change. Therefore, it gives an opportunity to the businesses consider entire nation as a common market and enhance the geographical purchase horizon and get the quotes multiple new vendors. Therefore, against the current practice of obtaining 3 or 4 quotations, business can identify multiple new vendors and get revised quotations to obtain for a better and cheaper price at same quality in the GST regime. Conducting vendor education programmes for un-organized vendors Since GST involves compliance from both the supplier and the buyer, procurements from un-organized vendors is a bit challenge to the business as the credit may be lost. In such cases, vendor education programmes need to be conducted for un-organized vendors to bring awareness about GST. Such programmes shall ultimately fetch results for the customers in the long run. 39 P a g e

40 Pricing of procurements from related parties In GST regime, transaction value is not applicable in case of related party supplies. GST shall be paid on the value arrived as per the Valuation Rules. 40 P a g e

41 4. Background for levy of GST and Supply Relevant Constitutional Provisions According to Article 265 of Indian constitution, no tax shall be levied or collected except by authority of law. Law making power is derived from Constitution by the Parliament and State Legislatures. Article 246 of Constitution empowers the Parliament and State legislatures to make laws to collect taxes on items listed in list I, II and III in the seventh schedule. In exercise of these powers, tax laws have been framed and several taxes are being collected with clear demarcation among states and Centre. For instance during pre-gst regime, Centre has the power to levy Excise Duty on manufacture, service tax on services while state government has the power to levy sales tax on sale of goods within the state. As Indian law makers has chosen to adopt dual GST structure wherein both Centre and state impose tax, 101 st Amendment Act, 2016 amended the provisions of constitution to facilitate levy and collection of GST by the Union Government and the States. Unlike earlier, GST is the first tax law that was framed with concurrent jurisdiction by Centre and states. The relevant amendments made are briefly explained as under: Article 246A of Constitution provides that both parliament and state legislatures shall have concurrent powers to make laws with respect to goods and services tax (GST). Parliament has exclusive power to legislate on inter-state trade or commerce and the GST collected on such transactions is called IGST. Article 269 of Constitution empowers the Parliament to make GST related laws for inter-state trade / commerce. Article 269A provides that in case of the inter-state trade, the tax will be levied and collected by the Government of India and shared between the Union and States as per recommendation of the GST Council. Article 279A of Constitution provides for constitution of a GST Council by President within sixty days from the day the Article coming into force. This Article also provides details about formation, functions and powers of GST Council. 41 P a g e

42 Article 268 has been amended so that excise duty on medicinal and toilet preparation will be omitted from the state list and will be subsumed in GST. Article 268A which was introduced to facilitate levy of service tax but was never made effective, has been repealed. Now service tax is subsumed in GST. Definitions in Constitution relevant to GST Before proceeding to discuss levy of the new tax, the GST, it would be appropriate to know the definitions of goods and services and some other important expressions in the Constitution and the GST law. Article 366 of the Constitution gives the meaning of some important expressions used. According to this Article (i) goods includes all materials, commodities, and articles; (ii) goods and services tax means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption; (iii) Services means anything other than goods; Some important definitions in GST law Section 2(52) of CGST Act, 2017 goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply; Section 2(102) of the CGST Act, 2017 Services means anything other than goods, money and securities but includes activities relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged It can be seen that the definition of goods in the constitution has a major difference when compared to the definition of goods in the GST law. Goods include actionable claims in GST law but the definition in Constitution does not include actionable claim. GST Council Envisaged GST model in the Constitution gives a pivotal role to the GST council which is also a creation of the constitution. The GST Council aims to develop a harmonized national market of goods and services. Union Finance Minister is the chairman of the council and Minister of State for 42 P a g e

43 Finance and a Minister nominated by each State would be members of the Council. The decisions of the GST Council will be made by three-fourth majority of the votes cast. The centre shall have one-third of the votes cast, and the states together shall have two-third of the votes cast. The GST Council will make recommendations on: taxes, cesses, and surcharges to be subsumed under the GST; goods and services which may be subject to, or exempt from GST; the threshold limit of turnover for application of GST; rates of GST; GST laws, principles of levy, apportionment of IGST and principles related to place of supply; special provisions with respect to the eight north eastern states, Himachal Pradesh, Jammu and Kashmir, and Uttarakhand; and other related matters. IGST levied and collected in the course of inter-state trade is shared between the Union and States as per recommendation of the GST Council. For convenience CGST and SGST provisions have been considered as same and the term GST law has been used in this chapter. What is meaning and scope of supply? GST is levied on supply, so it is important to understand the scope and meaning of the same. Though the constitution provided that GST is tax levied on supply of goods/services but not defined the word supply. The same was defined in the GST law which is discussed as below: The term supply is defined to include: all forms of supply of goods and/or services: such as sale, transfer, barter, exchange, license, rental, lease or disposal, made or agreed to be made for consideration by a person in course of or furtherance of business Import of service, for a consideration, whether or not in the course or furtherance of business Activities specified in Schedule I (provided in Annexure-I) and Activities to be treated as Supply of goods and services as referred to in Schedule II (Provided in Annexure II) Activities or transactions specified in Schedule III; or such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the 43 P a g e

44 recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services (Provided in Annexure III) The Central or a State Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods; or The tax liability on a composite or a mixed supply: (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; (b) a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax. Definitions: Composite Supply: Section 2(30) composite supply means a supply made by a taxable person to a recipient comprising two or more taxable supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; Example: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply. Mixed Supply: Section 2(74) mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply; Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately Power to levy different types of GST Parliament has the power to make laws for collection of CGST (Central Goods and Services Tax) and IGST (Integrated Goods and Services Tax) and the State Legislatures 44 P a g e

45 have been given the power to make laws for collection of SGST / UTGST(Union Territory Goods and service tax or State Goods and Services Tax) after the amendments made to the constitution in 101 st Constitution Amendment Bill were approved by the Parliament and more than half of the State legislatures. The three taxes are collectively called Goods and Services Tax (GST). GST is collected on supplies of goods and services. CGST collected is for the Union Government, SGST UTGST collected is for the States or Union Territory and IGST is collected on supplies in the course of inter-state Trade and imports and is shared by Union and the States. Apportionment of Tax and settlement of dues Section 17 of IGST Act 2017 deals with the issue of apportionment of IGST between the Central government and the States. The section provides for apportionment of the amount equivalent to the CGST component of IGST to the Central government. In the case of supplies of goods or services to/or imports by an unregistered person or taxable person availing composition scheme, amount equal to CGST payable on intra state supply of goods or services would be apportioned to the Central Government; Where a receiver of goods or services or an importer is not eligible for input credit or where he does not avail the credit within one year or before the annual return is filed in respect of imports made in a year, amount calculated equivalent to CGST payable on similar intra state supply shall be apportioned to the Central Government; Balance amount remaining after apportionment as per the provisions above, shall be apportioned to the State where such supply takes place as per sections 7, 8, 9 and 10 (Provisions relating to place of supply in the IGST Act discussed in detail in relevant chapters). Where the place of such supply made by any taxable person cannot be determined separately, the said balance amount shall be apportioned to each of the States to which such taxable person has made supplies during the financial year in the proportion of the total supplies made to each of such States. In case taxable person making such supplies cannot be determined, the amount will be paid to the States as per the orders of the President under Article 270(2) of the Constitution. (Article 270(2) of the Constitution provides that where the Finance 45 P a g e

46 Commission has made recommendations, President will issue the order after considering the recommendations of the Finance Commission.) Above principles for apportionment shall mutatis mutandis apply to the apportionment of interest, penalty and compounding amount realized in connection with the tax so apportioned. Amounts apportioned to the Central government and States shall be transferred to the CGST account and SGST account of the respective State by the Central government. Time and manner of such transfer are to be prescribed. If any refund of IGST is granted, the amount transferred to the State shall be reduced to that extent. Again Time and manner of such reduction are to be prescribed. 46 P a g e

47 Annexure-I SCHEDULE I Activities specified in, Made or agreed to be made without consideration, viz. i. Permanent transfer / disposal of business assets where input tax credit has been availed on such assets. ii. Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business. Provided that gifts not exceeding Rs 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services both iii. Supply of goods a) By a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or b) By an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. iv. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business. Annexure-II SCHEDULE II of GST Act, where matters as treated as supply of goods or services. 1. Transfer (1) Any transfer of the title in goods is a supply of goods. (2) Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services. (3) Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed, is a supply of goods. 2. Land and Building (1) Any lease, tenancy, easement, licence to occupy land is a supply of services. (2) Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. 3. Treatment or process 47 P a g e

48 Any treatment or process which is being applied to another person s goods is a supply of services. (Job work transactions subject to section143 of GST). 4. Transfer of business assets (1) Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person. (2) Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services. (3) Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless (a) the business is transferred as a going concern to another person; or (b) the business is carried on by a personal representative who is deemed to a taxable person. 5. The following shall be treated as supply of service (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. Explanation.- For the purposes of this clause- (1) the expression "competent authority" means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of nonrequirement of such certificate from such authority, from any of the following, namely: (i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (ii) a chartered engineer registered with the Institution of Engineers (India); or (iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority; 48 P a g e

49 (2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d)development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software; (e)agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; (f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; and 6. Composite Supply The following supplies shall be treated as supply of services a. works contracts defined in section 2(119) b. supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration. 7. The following shall be treated as supply of goods (supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration. Notwithstanding anything contained in subsection (1) (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, Annexure - 3 SCHEDULE III Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services 1. Services by an employee to the employer in the course of or in relation to his employment. 2. Services by any Court or Tribunal established under any law for the time being in force. 49 P a g e

50 3. (a) The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities; (b) The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (c) The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause. 4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased. 5. Sale of land and, subject to clause (b) paragraph 5 of Schedule II, sale of building. 6. Actionable claims, other than lottery, betting and gambling. Explanation. For the purposes of paragraph 2, the term "court" includes District Court, High Court and Supreme Court. 50 P a g e

51 5. Levy and collection of CGST, SGST and IGST It is now well settled legal position that below are the components which enter into the concept of a tax: 1. The character of the imposition known by its nature which prescribes the taxable event attracting the levy, 2. Person on whom the levy is imposed and who is obliged to pay the tax 3. The rate of tax 4. Measure/ value to which the rate will be applied for computing the tax liability. If any of the components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness ill the legislative scheme defining any of those components of the levy will be fatal to its validity The above position is flown from the unvarying series of Hon ble Supreme court rulingsand well recogonised lawfully and explicitly in Central and State legislation as well. Under GST the four components are clearly specified which are discussed herein below Taxable Event There has to be a taxable event to trigger liability to pay tax. In the case of GST, the taxable event is supply of goods/services. Section 7 of the GST law defines supply. Law has provisions to determine place of supply, time of supply to facilitate levy and collection which are discussed in the relevant chapters. According to section 9, the charging section, a tax called the Central/State Goods and Services Tax (CGST/SGST) on all intra-state supplies of goods and/or services shall be levied and collected in the manner prescribed. Section also makes it clear that tax will be levied and collected on the value determined under section 15. Tax will be levied and collected at the rates notified by the Central or State Government. There is a ceiling to the rate which is 20% of the value for each CGST & SGST respectively. 51 P a g e

52 As of now there is no provision to levy tax on the basis of quantity, volume etc. popularly known as specific rate. The section also provides that rate will be determined on the basis of recommendations of GST council. Taxable Event - IGST Section 5 of the IGST Act, 2017 is the charging section. A tax called the Integrated Goods and Services Tax (IGST) shall be levied on all supplies of goods/and or service made during the course of inter-state trade or commerce. Section also makes it clear that tax will be levied and collected on the value determined under section 15 of the CGST Act, Tax will be levied and collected at the rates notified by the Central or State Government. There is a ceiling to the rate which is 40% of the value. The section also provides that rate will be determined on the basis of recommendations of GST council and collected in the manner prescribed. Import of goods or services are treated as inter-state supplies. IGST on imported goods will be levied and collected in accordance with the provisions of section 3 of Customs Tariff Act, 1975 at the point where customs duties are charged. As of now there is no provision to levy tax on the basis of quantity, volume etc. popularly known as specific rate. Provisions relating to reverse charge and electronic commerce operator are similar to the provisions in the CGST law and are applicable for levy and collection of IGST on inter-state supplies of goods or services. Tax has to be paid by every taxable person in accordance with the provisions of the Act. Taxable person According to section 9(1) of CGST Act, Tax has to be paid by every taxable person. The expression Taxable person has been explained in section 2(107) of the CGST Act. Taxable person means a person who is registered or liable to be registered as per section 22 or 24 of the CGST Act. 52 P a g e

53 A person or an establishment of a person, who has obtained or is required to obtain more than one registration, whether in one State or more than one State, shall, in respect of each such registration, be treated as distinct person for the purposes of this Act. This provision makes it obligatory for a person who has branches/offices in different states liable to pay GST on supplies made to each other. Reverse charge Sub-section 3 of section 9 provides that Central/State Governments may specify categories of supply of goods /or services, the tax on which is payable on reverse charge basis on the recommendations of GST council. Sub-section 4 of section 9 provides payment of tax by the recipient on all the supplies taken from the unregistered vendors, whether goods or services. Sub-section 4 of section 5 of IGST Act 2017 provides payment of tax by the recipient on all the supplies taken from the unregistered vendors, whether goods or service. In 22 nd GST council meeting held on it was decided that the section 9(4) will be not applicable till , Notification 38/2017 Central Tax (Rate), dated 13 th October 2017 issued giving effect by amending notification 08/2017 Central Tax (Rate), dated 28 th June 2017 which is issued for URD purchase of Rs. 5000/- per day is exempted. In such cases the tax has to be paid by the recipient of goods or services. All the provisions of CGST Act shall apply to such person as if he is the person liable for paying the tax in relation to the supply of such goods or services. It has to be noted that reverse charge payment of tax existed earlier in the case of VAT as purchase tax and in the case of central excise levy on manufacture; this concept had not been introduced. As regards services, this concept existed and partial reverse charge taxation was also in vogue. Readers may please refer the chapter on reverse charge for further discussion. Electronic Commerce Operator [ECO] Sub-section 5 of section 9 gives powers to GST council to recommend specific categories of services the tax on which shall be paid by the electronic commerce operator if such services are supplied through it. Currently, Government has notified the o Services of Passenger transportation by cab/taxi/motor cycle 53 P a g e

54 o Accommodation services wherein tax shall be paid by the electronic commerce operator. Section 2(45) of the CGST Act Electronic commerce operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce. Section 2(44) of the CGST Act Electronic commerce means supply of goods or services or both including digital products over digital or electronic network. The Central or a State Government may issue notification thereafter and ECO will be treated as the person liable for paying the tax on such services. The ECO has to ensure that it is represented by a person in India if it does not have an office. Other two components namely rate of tax and valuation was discussed in following chapters. Transactions liable to CGST and SGST CGST and SGST are payable on all intra state supplies of goods or services. Intra state supplies are explained in the IGST law. As per section 8 of IGST Law, intra-state supply of goods or services means any supply of goods and /or services where location of supplier and place of supply are in the same state. The meaning excludes SEZ units and imports. Collection of tax at source Sections 52 of CGST Act provide for tax collection at source. This is a new concept brought in from Income tax Act. Section 52 makes it obligatory for every electronic commerce operator not being an agent, to collect an amount calculated at the rate of one percent of the aggregate value of taxable supplies made through it where the consideration with respect to such supplies is to be collected by the operator. Naturally goods/services where ECO is required to pay the tax are excluded from this requirement. Amount collected in a month has to be paid to the government within 10 days from the end of the month. ECO has to file a return. Supplier can take credit of tax paid. 54 P a g e

55 The provisions relating to electronic credit ledger, matching, resolution of discrepancy etc have been provided for in the section but are similar to the provisions relating to input credit covered in detail in the relevant chapter. Central or a State Government may mandate (a) a department or establishment of the Central or State Government, or (b) Local authority, or (c) Governmental agencies, or (d) such persons or category of persons as may be notified, by the Central or a State Government on the recommendations of the Council to deduct tax at the rate of one percent from the payment made or credited to the supplier. Deduction has to be made in respect of goods and/or services where the total value of such supply, under a contract, exceeds five lakh rupees (excluding taxes). GST council recommendation and notification of goods and/or services would also be necessary. 55 P a g e

56 6. Classifications and Rates Background: In order to determine the applicable rate of tax in respect of a particular item, the positioning of that item under a particular head or sub-head is essential. The positioning of an item in the appropriate heading/sub-heading is called classification. In Central Excise classification disputes which were numerous in 1990s disappeared when majority of products in one category were taxed equally and rates were reduced. Now with some categories having 5, 12,18, 28 and followed by the various exemptions, it is expected that similar classification issues would arise and continue. The list of rates applicable to goods and services, exemptions, extent and activities under reverse charge under GST regime are in place. The Harmonised System of Nomenclature is to be followed to classify the goods or services, which ensures that the classification anywhere in the world matches that in India. Rate of GST and Threshold exemption limit: Notification No.01/2017 has been issued under Central Tax (Rates) and Integrated Tax (Rates) to provide the GST rate schedule for different products based on their HSN classifications. Rates for Goods: The broad list of GST rate as per the given schedule is as follows: 5 per cent. in respect of goods specified in Schedule I, 12 per cent. in respect of goods specified in Schedule II, 18 per cent. in respect of goods specified in Schedule III, 28 per cent. in respect of goods specified in Schedule IV, 3 per cent. in respect of goods specified in Schedule V, 0.25 per cent. in respect of goods specified in Schedule VI Rates for Services: Notification No. 11/2017 -Central Tax (Rates) and 08/2017- Integrated tax (Rates) have been issued to specify the rates which are broadly listed as follows: 5 per cent. - Rent a cab, job work relating to textiles, AC/non AC Restaurants service, Print Media advertisement etc., 56 P a g e

57 12 per cent. Certain Government construction contracts,, Accommodation where tariff is between Rs.1000 to Rs.2500/-, Business class air travel etc., 18 per cent. - General Rate all services not covered in other rates including construction, 28 per cent. - Luxurious hotels, Gambling, Amusement park entry etc., Rates under Composition: 2% in case of Manufacturers 1% in case of Traders 5% in case of Suppliers of Food and Beverages Service (Restaurant etc.) As seen from the above GST law has prescribed different rates on different goods/services and also provided provisions like time of supply, place of supply are different for goods and service respectively. Owing to this, the classification as goods or services is required to be done. Even after classifying it as goods/services, further step is arriving the rate of tax as the rates are different among goods or services. Therefore, the classification retains prominence importance even under GST. Presently in the manner in which the rates are announced the following aspects seems to have been followed: a. The rate table is given under five different rates, i..e. 5%, 12%, 18% & 28%. It is further based on HSN coding system chapter wise (which is 98 chapters at two digit level). It is relevant to note that each chapter will have a headings which is further coded with another two digits, making it four digit. Eg under chapter 08 heading 01 and 02 is given for reference as under: Tariff Item Description of goods Unit Rate of duty (1) (2) (3) (4) 0801 Coconuts, Brazil nuts and cashew nuts, fresh or dried, whether or not shelled or peeled 0802 Other nuts, fresh or dried, whether or not shelled or peeled b. As far as the manner in which the rate table is given, in each chapter particular rate column is identified with particular rate wherein they have mentioned that all goods not specified elsewhere. For example Chapter 84 and 85 under 18% it is 57 P a g e

58 so mentioned, whereas in Chapter 86, it is so mentioned under 5% and in Chapter 87 it is mentioned at 28%. c. While looking at the said rate table, one has to first refer to present Central Excise or Customs Schedule and classify their product first upto 8 digit. d. The presumption in the rate table published is that unless specifically covered separately, all the goods covered under one heading (i.e. four digit) are all falling under same rate. Therefore before going into rate table one has to classify the goods under specific tariff entry upto 8 digit and identify the four digit coding and then look into rate table to identify the rate. Classification in Central indirect taxes Under earlier law, in central excise the classification of goods involves determining the headings or sub-headings of the First Schedule to the Central Excise Tariff Act 1985 under which the said goods would be covered. It is also necessary to determine eligibility to exemptions, most of which are with reference to the Tariff headings or sub-headings. Composite vs Mixed supply under GST Under GST it sets out the tax liability on a composite or a mixed supply shall be determined in the following manner a. a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; b. a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax. For this we need to understand what is composite and what is mixed supply, which is discussed below. Composite Supply: Section 2(30) composite supply means a supply made by a taxable person to a recipient comprising two or more taxable supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; Composite supply comprising of two or more supplies, one of which is principal supply shall be treated as supply of such principal supply. 58 P a g e

59 Section 2(90) of the CGST Act, 2017, defines Principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. Eg: Where goods such as fans are supplied and installation done at buyer place, the supply of fan and installation of fan is a composite supply and supply of fan is the principal supply to be taxed at the GST rate which is applicable to fan. Supply of software on CD and license to use same, could be liable to GST at rate applicable to software license [treated as service under GST] if agreement is for licensing of software. Factors to be considered to determine composite supply a) Identify whether transaction consist of more than one supply of goods or service or both. b) Check whether combination of goods or service or both are naturally bundled in the ordinary course of business. c) Identify the principal supply among the supplies made. d) Check it is single priced or item-wise priced is immaterial. Mixed Supply: Section 2(74) mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply; Mixed supply comprising two or more supplies shall be treated as supply of particular supply which attracts highest rate of tax. It shall not be a mixed supply if these items are supplied separately Examples: A supply consisting of cakes and fresh fruits in single box, for a single price is a mixed supply. In such case where cakes are taxable and fruits exempted, each of these items can be supplied separately and is not dependent on any other. When supplied together, taxed at GST rate applicable to cakes. Supply consisting of taxable coaching class and exempted residential dwelling, could be taxed at highest rate applicable to coaching class. Bundled Services Under service tax law, there is a concept of bundled service. When more than one type of service are provided in combination with each other in ordinary course of business, then 59 P a g e

60 such services to be treated based on essential character. Example, accommodation in hotel along with breakfast. Essential nature of service is that of hotel accommodation service and to be taxed at rate applicable to hotel accommodation service. When more than one kind of service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax. Example, renting done for residential purpose along with renting for commercial purpose used as office. The residential dwelling used as residence is exempted from service tax and renting for office use is taxable. The entire service is to be taxed at highest rate of tax of 15% applicable to renting for official use. Importance of correct classification Correct classification assumes great importance as tax liability essentially depends on effective rate of duty. An improper classification could have serious effect on business and relation with customer. Some of the possible ill effects are as under: a. There could be additional liability at later stage after correctly classifying and the taxable person could be saddled with huge demand from department and customer not willing to pay. b. Customer willing to pay tax [when received invoice/debit note within filing of next year Sept return] but not willing to pay interest and penalty. c. Missed out correct exemptions which were available if correct classification was done d. Transaction cost added by litigation. Classification of Goods under GST The rules of interpretation which are essential for classification is adopted from customs Tariff which is fairly developed in terms of judicial precedents. We have examined the method to arrive at the appropriate classification or for professionals advise on the same as under: I. Understanding of Business / Dictionary / Technological changes: It is important to understand the nature of business, to determine the classification of the activities which are being taken by the company by referring to: i. Company s website ii. Technical Write-up 60 P a g e

61 iii. Scientific / Technical terms / standards (Eg: Pharmacopia) iv. Description of products given by sales and marketing team of company especially the positioning of the goods/services, v. Competitors classification vi. Dictionary / Wikipedia: II. Classification based on HSN: HSN is an international practice of adopting a uniform classification was done to facilitate a common understanding of products across countries. HSN is a multi-purpose 8 digit product coding system for classifying goods. The HSN could be a good guide for confirming the understanding when in doubt. The Supreme Court has held in CCE v. Wood Craft Products Ltd (77) E.L.T. 23 that HSN can be resorted to in case of ambiguity in classifying goods. The Honorable Supreme Court in the case of Phil Corporation Ltd 2008 (223) ELT 9 (SC) has held that HSN is a safe guide for classification. III. What are the Rules for Interpretation? The rate notification specifically provided that the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of GST rates as well. The said are called the General Interpretative Rules. Central Excise Tariff Act provides a similar set of six rules to act as an instrument for classification. These are used to determine applicable tax rate and coverage in exemption. The classification should be first tested in the light of Rule 1 and if it is not possible, recourse is taken to rule 2, 3 and 4 in that same order in which the rules are set out. 1. Rule 1: provides that the titles of sections, chapters and sub-chapters are provided for ease of reference and determination of where the goods would fall and would be dependent on the relevant section and chapter notes contained in the Tariff. Example: The heading of Chapter 84 refer to nuclear reactors, machinery etc but even a hand pump falls under chapter 84. Where the Notes are silent, classification would be as per Note 2, 3, 4 and 5 of the Interpretative Rules. It would therefore be noted that Note 2, 3, 4 and 5 would have to be resorted to only if the Chapter does not contain any guide to classify the particular product. 61 P a g e

62 In the case of Salora International Ltd Vs CCE 2012 (284) E.L.T. 3 (S.C.) held that Tariff entries along with relevant Section and Chapter Notes, have to be resorted to first to see whether clear picture emerges. Only in absence of such a picture emerging, Interpretative Rules can be resorted to. 2. Rule 2(a): governs classification of incomplete or unfinished goods. It specifies that if the incomplete or unfinished goods have the essential characteristics of the complete or finished goods, then such goods would be classified in the same heading as the complete goods. Complete or finished goods would cover goods removed in unassembled or disassembled form. For instance a cycle removed in CKD condition is a cycle or railway coaches removed without seats would still be railway coaches. 3. Rule 2(b): provides that any reference in a heading to a substance shall include mixtures or combinations of that material with other materials. Any reference to the goods of a given material or substance shall be taken to include a reference to goods consisting of such material or substance. However, classification would be according to Rule 3 in such cases, where the subject goods consists of more that one material or substance. 4. Rule 3: states that for the purposes of sub-rule (b) of rule 2 or where goods are prima facie classifiable under two headings, the following shall be done sequentially: a. Specific description would have to be adopted in place of a general description. Example: Steering wheel of a car is part of motor vehicle as it is more specific. This was held by the Supreme Court in Moorco India Ltd. v. CC, 1994 (74) E.L.T. 003 (S.C). b. When two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete description of the goods. In such instances, classification has to be determined in terms of rule 3(b) or rule 3(c) c. Mixtures, composite goods consisting of different materials shall be classified as if they consist of that material or part which gives them their essential character. Ex: Concrete mix mainly consists of cement, further small proportions of stone, water and chemicals, in terms of rule 3, the classification of concrete mix is made 62 P a g e

63 under articles of stone, plaster, cement as concrete mix consists mainly of cement. d. Issue of essential character of subject matter in question as given in Rule 3(b) resorted to only if identification under Rule 3(a) providing for preference to more specific heading, is impossible. CCE VsJOCIL Ltd 2011 (263) E.L.T. 9 (S.C.) e. When goods cannot be classified in a or b above, they shall be classified under that heading which occurs last in the numerical order among those which equally merit consideration. 5. Rule 4: says where goods cannot be classified using the above principles, they would be classified under the head appropriate to the goods to which they are most akin. 6. Rule 5: In respect of packing material which are specially designed or fitted to contain a specific article and given with the articles for which they are intended, shall follow the classification of the items which are packed. Ex: Camera cases, mobile cases, musical instrument case etc. such packing material if not used with the article for which it is intended for may have low or no utility. However, this rule should not be adopted when packing material itself gives the essential character as a whole. The packing materials and containers cleared or presented along with the goods are classifiable with the goods, however this provision would not be applicable when such packing material are intended for its repetitive use. Ex: Glass bottles are meant for repetitive use and therefore cannot be classified along with soft drink. 7. Rule 6: While ascertaining the classification of goods in the sub-heading of a heading it should be determined according to the terms of those sub-headings and any related Sub-heading notes and, mutatis mutandis the above principles of classification on the understanding that only sub-headings at the same level are comparable. For the purposes of this rule, the relative Chapter and Section Notes apply, unless the context otherwise requires a different interpretation. IV. Other Rules for Interpretation Non-statutory Principles evolved out of Judicial decisions 63 P a g e

64 Apart from the above statutory principles of classification, the Courts have evolved certain non-statutory principles. Some of these have been illustrated below. But it must be understood that statutory principles would have precedence over non-statutory principles. Some of the non-statutory principles for classification are: a. Classification as per ISI/ Pharmacopeia etc: Technology or complex chemical/ pharmaceutical products the reliance of the standard specified reference books can be done. However, for common products this may not be relevant. b. Trade parlance theory: This is used when the words are not defined under the act and words are not used in scientific or technical sense in the tariff. Trade parlance means the meaning as commonly understood by the people dealing commercially with the subject goods or the commercial recognition that is given to a commodity. This aspect is at times ignored by the revenue departmental officials leading to litigation. This could be obtained from evidences led by the client whose product is being classified as well as how the product is classified by trade associations. c. The terms in Tariff heading or sub-heading using commercial words to be interpreted as per trade understanding. In case of usage of strictly technical or scientific words, the approach should be different. Chemical and Fibres of India Ltd. v UOI [1997 (89) ELT 633 (SC)] d. Function or use: This principle is used when the definition in the statute is absent and articles are identified with their utility, primary use, design, shape etc. This refers to the primary function of the subject goods in the minds of the consumers of such goods. e. Break up or constituent material: Under this theory, the essential character of the product can be derived from the raw material that make up the goods. f. Expert opinion: Sometimes classification involving technical questions are decided after obtaining an opinion of experts and the opinion of the expert would not carry weight when they are contrary to another expert s opinion. 64 P a g e

65 g. Dictionary meaning: This principle can be adopted when the meaning given in the statute is overlapping, for finding out the trade understanding. h. Decided case laws of High Courts and Supreme Court and advance rulings: Such decisions where classification of goods was determined are also given weightage to arrive at the classification of goods. V. Other factors for determining classification of goods a. Raw materials classifications and rates: It is essential to know the classification of raw materials and percentage of credit available and taken. When there is doubt on applicability of lower vs higher tax rate, advisable to pay at higher tax rate especially when the tax paid on inputs/raw materials is high leading to credit accumulation. The credit can be used to pay the output tax at higher rate. b. Customer usage and credit whether available: It is important to know what percentage of customer taking the credit. When there is doubt on applicability of lower vs higher tax rate, then could err on side of caution and pay at higher rate especially when customer being B2B is in position to avail credit. c. New technology products may require understanding the technological advances. Services, classification could involve the following: a. Terms of agreement: The terms of agreement could be critical to find out what is the nature of the service. b. Classification of independent service: When service is independent service, then same to be classified in specific category. Example: outsourced advertising, market survey and other pre-sale services to be classified as business support service. c. Bifurcation of combined service: Examine whether the combined service can be bifurcated as per agreement/contract of service. Example: Exempted residential dwelling combined with taxable coaching class. When there is separate consideration for each service, could claim exemption for value of residential dwelling and tax to be paid on coaching class. 65 P a g e

66 d. Essential character: When combined service cannot be broken up, then classify based on essential character. Example: When some incidental logistics support service, such as post shipment tracking from US to India is done by commission agent engaged in enabling sale of goods of principal to Indian customers, the essential character is that of intermediary service, whose place of supply is India and liable to tax. What would go wrong if GST classification done wrongly: 1. If classified under lesser rate (5%) in lieu actual rate (18%), may result in nonrecoverability of taxes from customers and assessee may have to pay tax along with interest from his pocket which can be fatal for the business. 2. If goods or service is classified as exempted inadvertently even though it is taxable, may result in non-recoverability of taxes from customers and assessee may have to pay tax along with interest from his pocket which can be fatal for the business. 3. Where higher tax is charged, assessee may have to suffer with decrease in orders and cost of re-establishing with the customers, the damage of credibility with customers. 4. FTP benefits such as duty drawback and incentives could be lost due to wrong classification 5. Non-payment of compensation Cess, if any, applicable on specified goods and or services which may result in penal proceedings Care to be taken by professionals while classifying goods and services and claiming exemptions a. Entry has to be read in plain and simple terms. Do not make any assumptions and presumptions. b. The coverage of an entry has to be construed strictly. c. Even when the client claims coverage in any concessional rate of tax/exemption, the professional has to have sceptical view that the benefit may not be available. Then come to conclusion by following principles as set out above. d. For availing benefits under an exemption notification, the conditions have to be strictly complied with and met. e. Exemption Notification should be read literally and the same to be construed liberally if once it is found that notification is applicable to the assessee. 66 P a g e

67 f. When more than one exemption is available, assessee can opt for that notification which is more beneficial. Conclusion It has to be ensured that the classification of goods and services is done carefully. The danger of wrong classification is that the exemption is claimed/tax is paid at lower rate of say 5% against applicable 28%, which if comes to light at later point could wipe out the entire business. When in doubt of the classification, confirmation in writing may be sought from the revenue by communicating by RPAD / by speed post This is done to ensure that there are no sustainable demands of tax under GST citing wrong classification and consequently wrong tax rates being applied and paid on the goods and or services under GST regime. 67 P a g e

68 7. Place of Supply Introduction In any taxation law, the territory where the taxable activity has taken place determines the applicability of levy on any given activity. For example in case of sale of goods, interstate sales would attract CST whereas, intra state supplies would attract local VAT levied by state government. Services being intangible, it would have been difficult to identify when services are said to be provided in taxable territory especially in case of transactions with foreign parties say export or import of services. The Place of Provision of Services Rules (POPS) 2012, has been introduced post negative list to determine the location of services provided in case of various categories of services with certain deeming fictions. Similarly, under GST regime, it is important to specify where the supply occurred in Indian Territory or outside. Further, GST being two tier structure wherein CGST and SGST shall be levied on all intra-state supplies (within the state) and IGST shall be levied on all inter-state supplies (between/outside the state). Chapter V of IGST Act provides for provisions relating to Place of Supply (POS) of goods and /or services. The provisions for place of supply for goods and for services are provided separately in the GST law. As goods are tangible, the determination of their place of supply, based on the consumption principle, is not difficult. Generally, the place of delivery of goods becomes the place of supply. However, the services being intangible in nature, it is not easy to determine the exact place where services are acquired, enjoyed and consumed. In respect of certain categories of services, the place of supply is determined with reference to a proxy. A distinction has been made between B2B (Business to Business) & B2C (Business to Consumer) transactions, as B2B transactions are wash transactions since the ITC is availed by the registered person (recipient) and no real revenue accrues to the Government. 68 P a g e

69 Separate provisions for the supply of goods and services have been made for the determination of their place of supply. Separate provisions for the determination of the place of supply in respect of domestic supplies and cross border supplies have been framed. Internationally the place of supply for a B2B transaction is normally the place of recipient. This is to ensure that tax cascading does not happen. Also that taxes do not stick to the export of services making such service uncompetitive. In India the entries which are similar to service tax in GST would have had a number of clarifications and case law development which would be useful as reference material. Where the definition is not similar, one may tend to ignore them. Place of Supply of Goods Section 10and 11 of the IGST Act provides various provisions to enable determination of place of supply in case supply of goods. a) Where the supply involves movement of goods, the place of supply of goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient. Movement could be by the supplier or the recipient or by any other person. Ex: In case of branch transfers from Bangalore unit to Mumbai unit, the place of supply would be Mumbai where the movement of goods terminates for delivery. b) Where the goods are delivered by the supplier to a recipient or any other person, on the direction of a third person say agent, before or during movement of goods, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such third person. This provision could be applicable on bill to ship to transactions. Ex: Mr A billing to Mr. B for supplying goods to Mr. C. In such case, location of Mr. B shall be the place of supply for Mr. A and Location of Mr. C shall be the place of supply for Mr. B. c) Where supply does not involve movement of goods, the place of supply shall be the location of goods at the time of delivery to the recipient. Ex: Sale of books at book shop. d) Where the goods are assembled, or installed at site, the place of supply shall be the place of such installation or assembly. Ex: Supply of Air condition with installation. 69 P a g e

70 e) Where the goods are supplied on a board conveyance, such as vessel, an aircraft, a train, or a motor vehicle, the place of supply shall be the location at which goods are taken on board. This is similar to that of currently existing provision in state VAT laws. Ex: Soft drink bottles boarded to Chennai to Delhi train at Chennai. Foods may be supplied to passengers at Solapur. The place of supply would still be Chennai where the goods have boarded. f) In case the place of supply cannot be determined by any of the provisions discussed so far, the same shall be identified in the manner to be prescribed by Central government on the recommendation of GST council. g) In case of import of goods, the place of supply shall be the location of importer and the place of supply shall be location outside India when the goods are exported from India. This would ensure the concept of destination based taxation where in export of goods are not taxed and at the same time import transactions would be subject to GST and the importer would be made liable to Pay IGST on such import transactions. Place of supply of Services Section 12 and 13 of the IGST Act provides various provisions to enable determination of place of supply in case supply of services. Section 12 provides for place of supply provisions when both supplier of service and the recipient are located in India (taxable territory) whereas, either of the supplier or recipient are located outside India, then the provisions are governed by Section 13 of the GST Act. General Rule The principle is kept similar to that of present service tax provisions where in location of recipient would be the location of service in default cases generally in B2B transactions. (i.e. the cases where no specific provision is provided under GST law to determine POS). However, following differences could be observed: a) Where both supplier and recipient are located in India, the place of supply of service would be: The location of registered person when the service supplied to persons registered under the GST. Ex: Tax Consultancy services by a CA to a company registered under GST, 70 P a g e

71 The location of recipient of supply where supply is made to un-registered persons and the address exists on records of the supplier of service. Ex: Renting of furniture services provided to individuals Reg. under GST, The location of supplier of service in all other cases (i.e.in case where the supply made to persons not registered under GST and also their address does not exist on the records)ex: mobile repair services provided to individuals. b) Where either of the supplier or recipient located outside India, the place of supply of services would be: The location of recipient of services. Ex: Management consultancy services provided by a person located in India to a person located in US. In cases where recipient location is not available in the ordinary course of business, then the location of the supplier. Ex: Tour operator services provided to a foreigner from India, the place of supply would be India. Determination of Location of service provider and recipient: The definition of location of recipient of service and location of supplier of service provided under GST law is similar to that of existing service tax provisions. i.e. when the registration is obtained, then the location of such registered premise or else the fixed establishment which is most directly concerned with the supply. In absence of those, the location of usual place of residence shall be considered as location of service provider/ receiver as the case may be. Place of business includes a place from where business is ordinarily carried on including warehouse, a godown, a place where books of accounts are maintained or a place where taxable person is engaged through agent. Fixed establishment means place other than the place of business which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receiver and use services for its own needs. Services relating to immovable property a) Where both supplier and recipient are located in India: In case of services provided directly in relation to an immovable property, the POPS shall be the place where the immovable property is located or intended to be located. The following categories of services could be covered in this provision: 71 P a g e

72 services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work, Services by way of lodging accommodation by a hotel, inn, guest house, homestay, club or campsite, by whatever name called and including a house boat or any other vessel, Services by way of accommodation in any immovable property for organizing any marriage or reception or matters related therewith, official, social, cultural, religious or business function including services provided in relation to such function at such property. Further, in case of all the services ancillary to the above listed services relating to immovable property/boat/vessel, location of such immovable property/boat/vessel would be the POS. Ex: Catering services provided along with letting out a banquet hall shall also be considered as provided in the location of such banquet hall. However, when the immovable property or boat or vessel is located outside India, the place of supply shall be the location of the recipient. This proviso expands the levy to even properties located outside India when both recipient and provider of service are located in India. In case the immovable property is located in more than one state, the POS would be based on proportionate value as per terms of the contract. b) Where either of the supplier or recipient located outside India: The place of supply of services supplied directly in relation to an immovable property, shall be the place where the immovable property is located or intended to be located. This includes services supplied in this regard by experts and estate agents, supply of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including architects or interior decorators. Services based on performance a) Where location of both supplier and recipient is in India: In case of following services, the place of provision of service would be deemed to be the location where such services are performed / held: Restaurant and catering services, personal grooming, fitness, beauty treatment, health services including cosmetic and plastic surgery. 72 P a g e

73 Training and performance appraisal to a person other than a registered person. In case of training and performance services provided to a person registered under GST, then the place of supply would be the location of such registered person. Where either of the supplier or recipient located outside India, the place pf supply of services would be same as in case of present service tax provisions for performance based services b) Where location either of the supplier or recipient is outside India: In case of Services provided in respect of goods that are required to be made physically available to the provider of services in order to provide such service, the POS would be the location of performance of service. It provides that, when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of service. This provision would not be applicable in the case of a service supplied in respect of goods that are temporarily imported into India for repairs and are exported after repairs without being put to any further use in India. In such cases, the default rule being the location of service recipient shall be the place of supply. Where both supplier and recipient are in India, the services provided in respect of goods that shall be physically made available to service provider (Ex: Motor car repair services), are not covered in GST under performance based services. Therefore, the place of supply in case of such services would be under general rule as discussed earlier. Further, also in case of services provided to individuals which requires the physical presence (of recipient /on behalf) for provision of services, the POS shall the place of performance of service. Say health related services. Services relating to events a) Where location of both supplier and recipient is in India: In case of services provided by way of admission to of cultural, artistic, sporting, scientific, educational or entertainment event or amusement park or any other place and services to ancillary to such admission, the POS would be where the event is actually held or where the park or such other place is located. In case of organization of an event (cultural, artistic, sporting, scientific, educational or entertainment events) and its ancillary services including assigning of sponsorship of such events, the place of supply would be location of recipient when such services are provided 73 P a g e

74 to persons registered under GST. If not, the place where events are actually held shall be the Place of supply. Ex: Organising a seminar on GST for a company who is registered under GST, the POS would be the location of company and not the place where seminar is held. In addition to above, following points needs to be kept in mind: In case if the event is held outside India, the POS shall be the location of recipient if neither of provider nor recipient are located outside India. In case the event is held in more than one state, the POS would be based on proportionate value as per terms of the contract. b) Where location either of the supplier or recipient is outside India: The place of supply of services supplied by way of admission to, or organization of, a cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar events, and of services ancillary to such admission, shall be the place where the event is actually held. Services by way of transportation of goods The Place of supply provision for transportation of goods shall include even mail and courier services and there is no separate provision for GTA provided unlike in current service tax provisions. When services by way transportation of goods provided to a person registered under GST, then the location of such recipient shall be the place of supply. If such services are provided to unregistered person, then the place of supply would be the place where goods are handed over for transportation. Ex: Courier services provided by Blue Dart to Infosys, the location of Infosys would the POS. If same is provided to a person not registered under GST, then the POS shall be the location where goods are handed over to blue dart. If the same service is provided to individual who is not registered, then the location where the goods are given to Blue Dart by such individual would be the POS. When either a supplier or recipient is located outside India, the Place of supply in case of services of transportation of goods other than by way of mail or courier would be the place of destination of goods. Services by way of transportation of passengers 74 P a g e

75 The place of supply would be the boarding point of passenger who is not registered under GST. As far as service provided to registered persons are concerned the Place of Supply would be the location of such recipient. Further, where the right to passage is given for future use and the point of embarkation is not known at the time of issue of right to passage, the place of supply of such service shall be determined in the manner specified in general rule. Ex: Monthly pass issued by a travel agency with no restriction on boarding point in the city. The return journey shall be treated as a separate journey even if the right to passage for onward and return journey is issued at the same time. Where either of the supplier or recipient is located outside India, The place of supply in respect of a passenger transportation service shall be the place where the passenger embarks on the conveyance for a continuous journey. Services provided on board a conveyance The place of supply of services on board a conveyance such as vessel, aircraft, train or motor vehicle, shall be the location of the first scheduled point of departure of that conveyance for the journey. Ex: Foods/movie /games services provided on Bangalore Mumbai - Bangkok flight, the POS would be Bangalore i.e. services deemed to be provided in taxable territory. Telecommunication services There was no specific provision specifying place of provision of service rule in the current indirect tax law. Under GST, the place of supply of telecommunication services including data transfer, broadcasting, cable and direct to home television services to any person shall be as follows: S. No Nature of telecommunication Service Place of Supply 1 Services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna. 2 Mobile connection for telecommunication and internet services provided on post-paid basis location where the telecommunication line, leased circuit or cable connection or dish antenna is installed. the location of billing address of the recipient of services on record of the supplier of services 75 P a g e

76 3 mobile connection for telecommunication, internet service and direct to home television services are provided on prepayment through a voucher or any other means i) Through selling agent or a re-seller or a distributor of SIM card or re-charge voucher - address of the selling agent as per the record of the supplier ii) by any person to the final subscriber - the location where such pre-payment is received or such vouchers are sold. Note: If such pre-paid service is availed through electronic mode, POS would be the location of the recipient as per the supplier s records. 4 in other cases not covered in (2) and (3) above Address of the recipient as per records of the supplier of the service However, where address of the recipient is not available in the supplier record, the place of supply shall be the supplier s location. Further, where the leased circuit is installed in more than one State, the place of supply would be based on proportionate value arrived as per contract terms. Banking and other financial services In case of banking and other financial services including stock broking services to any person, place of supply shall be the location of the recipient (need not be account holder) of services on the records of the supplier of services. However, if the location of the recipient is not on the records, the place of supply shall be location of the supplier. Ex: merchant banking services, financial leasing services, net banking services etc. Online information and database access or retrieval services When either of the supplier or recipient is located outside India, the place of supply would be the location of service recipient. Further deeming fiction is inserted to determine the location of service recipient in order to expand the scope of GST. Subscriptions to online books/journals, download of digital content etc could be examples for online info and database access or retrieval services. Person receiving such services shall be deemed to be located in the taxable territory if any two of the following non-contradictory conditions are satisfied: The location of address presented by the recipient of service via internet is in taxable territory; 76 P a g e

77 The credit card or debit card or any other card by which the recipient of service settles payment has been issued in the taxable territory, The billing address of recipient of service is in the taxable territory, The internet protocol address of the device used by the recipient of service is in the taxable territory, The bank of recipient of service in which the account used for payment is maintained is in the taxable territory, The country code of the subscriber identity module (SIM) card used by the recipient of service is of taxable territory, The location of the fixed land line through which the service is received by the recipient is in taxable territory. No specific provision in place of supply provisions as far as both supplier and recipient of online info and database access or retrieval services are located in India and hence, general provision would be applicable. Insurance services When the insurance services are provided to registered person, the place of supply would be the location of such registered person, or else, the location of recipient as per the supplier s records would be the place of supply. Advertisement services to Government In case of advertisement services to the Central Govt, a State Govt, a statutory body or a local authority meant for identifiable states, the place of supply of shall be taken as located in each of such States on proportionate basis in terms of contract. Order of application of rules Currently, the place of provision of service rules provides order of application of rules when a service could be fit into more than one rule. However, the place of supply provisions under GST does not provide any such methodology which could lead to different interpretation by industry and departments in their own interest. Miscellaneous provisions where either of the supplier or recipient is located outside India a) In case services based on performance, immovable property or the services relating to events, is supplied at more than one location, including a location in taxable territory, its 77 P a g e

78 place of supply shall be the location in the taxable territory where the greatest proportion of the service is provided. b) Further, when the above-mentioned services are provided in more than one state, the place of supply shall be in proportion to the value of services provided as per the terms of the contract. c) In case of services provided by financial institutions, intermediary services and services consisting of hiring of means of transports up to a period of one month, the place of supply would be the location of supplier of service. d) The Central Government shall have the power to notify any description of service in which the place of supply shall be the place of effective use and enjoyment of a service in order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules. Whenever the place of supply is to be determined in terms of the contract or agreement entered in this regard and in the absence of such contract or agreement, place of supply shall be determined on such other reasonable basis as may be prescribed in this behalf. Avoidance of double taxation: Section 13(13) In order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules, the Government shall have the power to notify any description of services or circumstances in which the place of supply shall be the place of effective use and enjoyment of a service. Precaution to be taken while determining place of supply of goods and or services The professional should carefully go through the various agreements the client has with his customers to understand the terms and conditions as the status as to Place of Supply provisions. At same time if by applicability of these provisions, place of supply is outside India, it is not liable to GST and no goods and service tax is payable. It is also essential to ensure that the conditions specified in Sec 2(5) and 2(6) of IGST Act are fulfilled for treating the goods or services as export. In other words, it is not enough if the place of supply is outside India. The client shall claim the benefits associated with export (Zero rated supply) in the form of refunds of input tax credit when exported without payment of GST or refund of tax paid on export with payment of GST. 78 P a g e

79 The billing and sales correspondences can also indicate the real nature of the transaction. It has been observed that at times the explanation, billing as well as the agreement are surprisingly all different. A careful analysis of reimbursement of expenses with group or associated enterprises in foreign countries is required. The professional is also advised to exercise due care in cases where the performance based criterion applies in order to determine the status as to Import or Export of service as often the cost of non-compliance could be high. Intimating the department about the stand taken by the entity with respect to taxation in case of contentious matters is very essential which could help the entity to curtail the demand along with interest and penalty on extended limitation period. Conclusion The scope and applicability of any law depends majorly on its charging section also called as levy. Though the other provisions set out in the act cannot override the charging section, but certainly could elaborate the meaning and scope of levy. Similarly, in case of GST, though the levy is on supply, the place of supply provisions would influence the levy to a larger extent especially in case of import and export of goods and/or services. Even in case of domestic transactions, the POS would be the backbone while determining whether supply is an interstate or intra state supply. Hence, logical interpretation, contracts which are clear on the services being provided and timely representations to Government in case of unfairness would be critical. 79 P a g e

80 8. Time of Supply Background: In order to calculate and discharge tax liability, it is important to know the date when the tax liability arises i.e. the date on which the charging event has occurred, popularly known as tax collection event. Further, Article 265 of the Constitution of India states that No tax shall be levied or collected except by authority of law. Not only the levy of tax but collection of tax was also prominently important. The old indirect taxes in pre-gst regime, different acts provide for different point of time for collection and payment of taxes. Thus, while removal of goods from place of removal triggers payment of excise duty under excise laws, the liability to pay VAT/CST arises on sale of goods. Under Customs laws, import duty is to be paid at the time the goods arrive at the Indian Customs Station and Bill of Entry for home consumption is filed. Similarly, in case of services, as per the Point of Taxation Rules, 2011, the liability to pay service tax arises on issue of invoice or on receipt of payment or completion of service as defined in the rules. Under GST Law ( GSTL ), the time of supply provisions, in relation to goods as well as services, defines the point of time at which the liability to pay GST arises. Different provisions have been enunciated for goods and for services. Thus, in order to decide the time of supply, it is imperative that one correctly classifies the underlying supply as a supply of goods or a supply of services as per the GST laws. TIME OF SUPPLY OF GOODS IN NORMAL SCENARIO: CGST CHAPTER IV- SECTION 12 - Time of supply of goods EARLIER of date on which Supplier issues invoice OR Last date on which required to issue invoice as per Section 31(1) Supplier receives payment i.e. Earlier of : a) Payment entered in the books of accounts b) Payment credited to bank account If advance is received and Above supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment. However recently vide notification no. 40/2017-Central Tax dated there was amendment made to specify that registered persons having aggregate turnover less than Rs 1.5 crores (on PAN India 80 P a g e

81 basis) need not pay on advance received and shall pay tax on issuance of invoice. Further, notification no. 66/2017-Central Tax dated 15 th Nov 2017 which is amended the notification 40/2017 Central Tax dated provides relief to all registered tax payers who supplies the goods not required to discharge GST on advance. This relief is made available to the supplier of goods and not to the services suppliers. The last date for issuing invoice as per Section 31 of the GST Law can be summarized as follows: Section Scenario Invoice shall be issued : 31 (1) Taxable goods supplied by registered taxable person Before or at the time of : a) Removal of goods for supply OR b) Delivery / making available to recipient, as the case may be 31(4) Continuous supply of goods Before or at the time each successive statement of accounts issued or each successive payment received 31(7) Goods sent or taken on approval or sale or return basis Before or at the time a) of supply OR b) 6 months from date of removal, whichever earlier TIME OF SUPPLY OF GOODS IN SPECIAL CASES: IN CASE OF PAYMENT UNDER REVERSE CHARGE BASIS In case where the tax is liable to be paid on reverse charge basis, the time of supply shall be as follows: CGST CHAPTER IV- SECTION 12 - Time of supply of goods EARLIER of date on which Date of receipt of goods Date on which payment made i.e. Earlier of : a) payment entered in the books of accounts of recipient b) payment debited in bank account Date immediately following 30 days from issue of invoice by supplier Where not possible to determine the time of supply under above, time of supply shall be the date of entry in the books of accounts of the recipient of supply. 81 P a g e

82 IN CASE OF SUPPLY OF VOUCHERS: Time of supply of goods - vouchers Where supply identifiable on issue of voucher - date of issue of voucher In other cases - date of redemption of voucher A voucher has been defined in the CGST Act as an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both, and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument. Vouchers are commonly used for transaction in the Indian economy. A shopkeeper may issue vouchers for a specific supply i.e. supply which is identifiable at the time of issuance of voucher. In trade parlance, these are known as single purpose vouchers. For example, vouchers for pressure cookers or television or for spa or haircut. Similarly a voucher can be a general purpose voucher which can be used for multiple purposes. For example a Rs. 1000/- voucher issued by Shopper s Stop store can be used for buying any product or service at any Shopper s Stop store. The time of supply is different in case of single purpose voucher and in the case of general purpose voucher. Time of supply in the case of single purpose voucher i.e. case where supply is identifiable at the time of issuance of voucher is the date of issue of voucher. However, in all other cases of supply of vouchers, the time of supply is the date of redemption of voucher. RESIDUARY PROVISION: Where time of supply of goods cannot be determined under any of the provisions above, the same shall be determined as follows: Time of supply of goods - residuary provision Where periodical return to be filed - date on which such return to be filed In other cases - date on which tax paid 82 P a g e

83 Time of Supply of Services In Normal Scenario: Particulars A. Where invoice issued within the time limit for issuing tax invoice (Note 1) Time of Supply of services shall be Earlier of a) Date of issue of invoice by supplier b) Date of receipt of payment (See Note 2 below) B. Where invoicenot issued within the time limit for issuing tax invoice (Note 1) Earlier of a) Date of provision of service b) Date of receipt of payment (See Note 2 below) C. Where A or B do not apply Date on which recipient shows the receipt of services in his books of accounts Advance upto 1K(both) NOTE 1: Time limit for issuing tax invoice: A. Before / after provision of service but within 30 days (45 days for isurer/ banking/n) B. In case of Insurer, Banking, NBFC C. If taxable supply of services between distinct persons, D. In case of distinct persons eg branches located in 2 different states: Before / at the time the supplier records the taxable supplies of services made in his books of accounts or before expiry of the quarter during which supply was made Other cases: Issue within 45 days NOTE 2:Date of receipt of payment is earlier of: a) Date on which payment entered in books of account of supplier b) Date on which payment credited to his bank a/c The supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment. The last date for issuing invoice as per Section 31 of the GST Law can be summarized as follows: 83 P a g e

84 Section Scenario Invoice shall be issued : 31 (2) Taxable services supplied by registered taxable person Before or after the provision of service but within 30 days (45 days in case of banking services) from date of provision of service 31 (5) Continuous supply of services (a) (b) (c) Where due date as per contract ascertainable Where due date as per contract not ascertainable Payment linked to completion of event On or before due date of payment Before or at the time supplier receives the payment On or before the date of completion of that event 31 (6) Cessation of supply before completion At the time supply ceases and to extent of supply made before cessation Time of Supply of Services In Special Cases: In Case of Payment under Reverse Charge Basis In case where the tax is liable to be paid on reverse charge basis, the time of supply shall be as follows: CGST CHAPTER IV- SECTION 13 - Time of supply of services EARLIER of date on which Date on which payment made i.e. Earlier of : a) payment entered in the books of accounts of recipient b) payment debited in bank account Date immediately following 60 days from issue of invoice by supplier Where not possible to determine the time of supply under above, time of supply shall be the date of entry in the books of accounts of the recipient of supply. 84 P a g e

85 In case of associated enterprises, where supplier of service is located outside India, the time of supply shall be as follows: CGST CHAPTER IV- SECTION 13 Time of supply of services- Associated enterprises EARLIER of date on which date of entry in BOA of recipient date of payment In Case Of Supply of Vouchers: Time of supply of services - vouchers Where supply identifiable on issue of voucher - date of issue of voucher In other cases - date of redemption of voucher Residuary Provision: Where time of supply of services cannot be determined under any of the provisions above, the same shall be determined as follows: Time of supply of services - residuary provision Where periodical return to be filed - date on which such return to be filed In other cases - date on which tax paid Time of Supply of Goods or Services In Case of Change In Rate Where any supply of goods or services takes place during the period when there is a change in the rate of tax, the below provisions would be applicable: Goods / Service supplied Date of invoice (DOI) Date of receipt of payment (DOP) Rate applicable 85 P a g e

86 Before change in rate After After DOI or DOP earlier of both Before After DOI After Before DOP Afterchange in rate Before After DOP Before Before DOI or DOP earlier of both After Before DOI Where credit in the bank account is after 4 working days from the date of change in the rate of tax, date of receipt of payment shall be the date of credit in the bank account. It is to be noted that the above provisions would override the time of supply covered under Section 12 or 13 of the GST Law(Mentioned above). Date of receipt of payment shall be date on which payment is entered in books of account of supplier or date on which payment credited to his bank account whichever is earlier. Date of receipt of payment in case of change in rate of tax Normally the date of receipt of payment is the date of credit in the bank account of the recipient of payment or the date on which the payment is entered into his books of account, whichever is earlier. However, in cases of change in rate of tax, the date of receipt of payment is the date of credit in the bank account if such credit is after four working days from the date of change in rate of tax. Time of supply of goods or services related to an addition in the value of supply by way of interest, late fees or penalty Time of supply related to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which supplier receives such addition in value. For example, a supplier receives consideration in the month of September instead of due date of July and for such delay he is eligible to receive an interest amount of Rs. 1000/- When the supplier receives an amount of upto Rs above tax invoice, the time of supply for such excess amount shall be the date of issue of invoice for such excess amount(at the option of supplier) 86 P a g e

87 9. Valuation Introduction Once the levy, classification, nature of transaction is ascertain, the next process is to identify the value of goods or services or both on which GST is to be paid. The value of goods or services or both is very essential and critical under GST law. In this chapter we have tried to provide what would be the value for discharging GST and different situations wherein one is required to refer the CGST rules, 2017 for the purpose of ascertaining the value for discharging GST. What is the value of taxable supply? Section 15 of CGST Act, 2017 deals with value of goods or services or both and as per said section transaction value would be the value on which GST is to be discharged by the tax payer. The transaction value is not defined in the CGST Act, 2017 however the section itself specifies what is transaction value. As per section 15 transaction value is the price actually payable or paid for the supply of goods or services or both. To consider price charged as transaction value, the following conditions are required to be fulfilled: 1) There should be supply of goods and /or services 2) The price actually paid or payable 3) Where the supplier and the recipient are not related 4) Price is the sole consideration The concept of valuation provided in CGST Act, 2017 is also applies to SGST, UTGST and IGST. The section 15 of CGST Act, 2017 also provides certain inclusions and exclusions from the ambit of transaction value. For example, the transaction value shall not include refundable deposit, discount allowed before or at the time of supply which are linked to such supply of goods or services or both. 87 P a g e

88 As per section 15(2), the transaction value shall INCLUDE following: a. any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Service Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; Comments: The transaction value should not include the taxes, duties, cesses, fees and charges levied under SGST/UTGST/IGST/Compensation cess. However any other taxes paid any other law is required to be included in the transaction value. If the vendor collects NCCD or any other taxes other than GST, such taxes is also forms part of transactional value. b. any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both; Comments: Any amount paid by the recipient which is the obligation of the supplier to incur such expenses to provide his supply of goods or services or both. In other words, the recipient engages third party for supplying certain goods or services which are essential for the supply made by the supplier but such cost is incurred by the recipient. In this example, the obligation to meet such expenses was on supplier; however which was paid by the buyer. Therefore these costs are to be included in the cost of transaction value. c. incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of the goods or supply of the services; Comments: As per this clause any costs incurred by the supplier at or before supply made is liable to be included in the transaction value. Example: cost of transportation, packing etc., incurred by the supplier for supplying goods are to be included in the transaction value of goods. Any expenditure incurred or any amount is charged from the buyer for wherever the reason as result of supply would be includable in transactional value. 88 P a g e

89 d. interest or late fee or penalty for delayed payment of any consideration for any supply; and Comments: In this clause, the amount recovered by the buyer/recipient in the name of interest or late fee or penalty for delay in receipt of consideration. If such amount is recovered the same shall be included in the value of transaction value. However, the question arises is the interest or penalty or late fee is collected post supply of goods. Hence whenever supply amount is received that would be considered as time of supply to discharge the applicable GST on the same. e. subsidies directly linked to the price excluding subsidies provided by the Central government and State governments; Explanation for the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. Comment: In this clause, the subsidies received which are directly linked with the price of supply of goods or services or both are to be included in the transaction value. However there is limited exclusion provided in the inclusion towards subsidies provided by Central and State Govt. in other words the subsidy provided by the Central and State Govt. is not required to be included in the transaction value. The transaction value shall not include the following: Any discount which is given: 1) Before or at the time of the supply provided such discount has been duly recorded in the invoice issued in respect of such supply; and 2) after the supply has been effected, if: a) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and b) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply As per the above referred clause, any discount which is recorded on face of the invoice and provided at or before supply is to be reduced from the transaction value. Ex: trade discount. 89 P a g e

90 If any discount is provided post supply of goods or services or both, then such discount is required to be linked with the supply made earlier. In such a situation the discount excluded from the transaction value, subject to that the credit note is to be raised for the same by the supplier and recipient is required to reverse/pay the attributable ITC on such discount. For the purpose of claiming deduction towards discounts provided post sale for payment of GST, agreement plays an important role. Any discounts allowed which are not as per the terms would be ineligible for deduction benefit. Therefore, it is suggested to include a discount clause in all agreements / purchase order / quotation / invoices without fail. This would make a significant difference in case the customers are final consumers as they would not be availing the credits. In case the transaction value is not ascertainable as explained above, then reference to be made to CGST Rules, 2017 related to valuation aspect. Let us examine in what circumstances CGST rules w.r.t valuation is required to be referred. - In case price is not the sole consideration, then transaction value concept fails and accordingly CGST rules are required to be examined - In case the supply of goods or services or both are between related party; - In case the consideration is received partly in money and partly in kind; - Supply between principal and agent, which is considered as deemed supply as per schedule I In all the above situations, one is required to examine the CGST rules relevant to valuation. The valuation rules prescribed in the CGST Rules, 2017 are discussed in details in the forthcoming paragraphs. Valuation in case where consideration is not wholly in money: Rule 27 deals with the situation where consideration is not, not wholly in money, in such case the value of the supply would be the - The open market value of such supply. - if case open market value is not available, then the value of supply would be the sum total of consideration in money and equivalent money value of nonmonetary consideration, only if such value is known at the time of supply. 90 P a g e

91 - If value is not identifiable as stated above, then the valueof supply of goods or services or both of like kind and quality. - If not determinable in above three methods, then to be determined as per Rule 30 or 31 of CGST Rules, 2017 Value in case transaction between distinct or related persons This situation is addressed in Rule 28 of CGST Rules, The value of supply between different establishments of same person or between related persons would be open market value, or the value of supply of goods or services of like kind or quality if the open market value is not available. However, where the recipient is eligible for full input tax credit, the value declared in the invoice would be deemed to be open market value of such supply Valuation of transaction between agent and principal: Rule 29 of CGST Rules, 2017 provides valuation with respect to the transaction between agent and principal. As per the said Rule value would be the open market value or at the option of the supplier, ninety percent of the price charged by the goods of the like kind and quality by the recipient to his customer, not being a related person and where the goods are intended for the further supply by recipient. Valuation based on cost: If the valuation cannot be ascertain in the above mentioned rules, in such situation one should refer to Rule 30 of CGST Rules, As per the said Rule the value shall be one hundred and ten percent of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services. Residual method for determination of value: Rule 31 of CGST Rules, 2017 provides residual method in case the value cannot be determined under any previous rules, the same shall be determined using reasonable means consistent with the principles and general provisions of section 15 of GST Act and the valuation rules. Further, a supplier of services may opt for this rule, disregarding the rule for valuing supply by cost construction method. Determination of value in respect of certain supplies Rule 32 provides method of valuation for certain type of supplies, the supplies which were under certain abatements under the earlier law is prescribed. 91 P a g e

92 1. Supply of services in relation to purchase or sale of foreign currency including money changing; a. Currency, when exchanged from or to Indian rupeesi. The value shall be equal to the difference in the buying rate or the selling rate and RBI reference rate multiplied by the total of units of currency. ii. If RBI reference rate for currency is not available the value shall be 1% of the gross Indian rupee of the transaction. iii. If currencies exchanged not Indian rupees the value shall be equal to 1% of the lesser of the Indian Rupee equivalent of each currency exchanged. 2. At the option of supplier of services, the value in relation to supply of foreign currency shall be deemed to be (a) 1% of gross amount of currency exchanged- up to 1 lakh subject to minimum amount of Rs. 250 (b) Rs and ½% of gross amount of currency exchanged exceeding 1 lakh and 10 lakh (c) Rs and 1/10 th % of gross amount of currency exchanged for an amount exceeding 10lakh subject to maximum of Rs. 60,000/- Once the above option is opted shall not be withdrawn during the remaining part of that financial year. 3. Supply of services in relation to booking of tickets for travel by air provided by an air travel agent, shall be deemed to be an amount calculated at the rate of 5% of basic fare in case domestic bookings and 10% of basic fare in the case of international bookings of passage for travel by air. 4. Value of supply of services in relation to life insurance business (a) Gross amount charged from a policy holder reduced by the amount allocated for investment or savings on behalf of the policy holder if such amount is intimated to the policy holder at the time of supply of service (b) Single premium annuity policies other than (a) 10% of single premium charged from the policy holder 92 P a g e

93 (c) In any other case 20% of premium charged from the policy holder in the first year and 12.5% of premium charged from policy holder in subsequent year. 5. Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e. used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on purchase of such goods the value of supply shall be the difference between the selling price and purchase price and where the value of such supply is negative it shall be ignored. The purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession. Further Notification No. 10/2017-CT(R;) dated wherein it is exempts the second hand goods received by a registered person (dealing in buying and selling of second hand goods and pays tax on margin) from unregistered person from whole of CGST and similar notification is issued under SGST and IGST as well. 6. The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp. 7. The value of taxable services provided by such class of service providers as may be notified by the Government on the recommendations of the Council as referred to in paragraph 2 of Schedule I between distinct persons as referred to in section 25, where input tax credit is available, shall be deemed to be NIL. Rule 33: Value of supply of services in case of pure agent 93 P a g e

94 Notwithstanding anything contained in these rules, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely:- i. the supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party on authorization by such recipient; ii. the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and iii. the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. For the purposes of this rule, pure agent means a person who - a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; c) does not use for his own interest such goods or services so procured; and d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. Example: Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A s recovery of such expenses is a disbursement and not part of the value of supply made by A to B Rate of exchange of currency, other than Indian rupees, for determination of value: Transactions undertaken in foreign currency must be translated into Indian Rupees. The rate of exchange for the determination of the value of taxable goods shall be rate of exchange as notified by the Board under section 14 of the Customs Act, 1962 for the date of time of supply of such goods in terms of section 12 of the Act this amendment made vide notification no. 17/2017-Central Tax dated P a g e

95 The rate of exchange for determination of value of taxable services shall be the applicable rate of exchange determined as per the generally accepted accounting principles for the date of time of supply of such services in terms of section 13 of the Act. Value of supply inclusive of GST taxes: Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State tax, Union territory tax, the tax amount shall be determined in the following manner, namely,- Tax amount= (Value inclusive of taxes X tax rate in % of IGST or, as the case may be, CGST, SGST or UTGST) (100+ sum of tax rates, as applicable, in %) ILLUSTRATION Machine India Ltd is engaged in the manufacture of machines. It has supplied one machine to Mr Z & co at a price of 8,50,000 (excluding taxes). Cash discount at 2% on the price of machinery is allowed to Z & co. Further, following additional amounts are being charged from Z & co: Sl Particulars Amount no 1 Expenses pertaining to installation and erection of the 30,000 machine at Z & Co premises(machine was permanently fixed to earth) 2 Packing charges 12,500 3 Design and engineering charges 4,000 4 Pre-Delivery inspection charges( charged by machine 1,000 India Ltd) 5 Bought accessories supplied with the machine 8,000 M/s Z &co supplied materials worth 10,000 free of charge to machine India ltd for being used in production of the machine. Determine the value of the machine for the purpose for valuation under proposed GST Law Answer: Computation of the value: 95 P a g e

96 Particulars AMOUNT NOTE Price of the machine 8,50,000 - Installation and erection 30,000 1 expenses Packing charges 12,500 2 Design and engineering charges 4,000 3 Pre-Delivery inspection 1,000 4 charges( charged by machine India L-td) Bought accessories supplied 8,000 5 with the machine Materials supplied by Z&co 10,000 6 Total 9,15,500 Less: cash discount@ 2% (18,310) 7 Transaction value 8,97,190 Notes: 1. As per sec 15(2), inclusions as per GST Law 2. As per sec 15(2)(3), incidental expenses as per GST Law 3. As per sec 15(2)(3), incidental expenses as per GST Law 4. As per sec 15(1), price charged by the supplier. 5. As per sec 15(1), price charged by the supplier. 6. As per sec 15(2)b, amount the supplier is liable to pay, but paid by the recipient on behalf of the supplier. As per sec 15(3)(b)(i), assuming it is declared in the invoice. 96 P a g e

97 10. Exemption Power to grant exemption from tax Section 11 of CGST Act and section 6 of IGST Act (Both have similar provisions) explain the powers of the Central and State Governments to grant exemption from payment of CGST and SGST in respect of taxable goods or services or both a. Exemption should be in public interest; b. Exemption should be granted issuing a notification which shall be laid on the table of the Parliament; c. Exemption has to be granted on the recommendation from the GST Council; d. Exemption granted may be for any goods and / or services; e. Exemption can be absolute or conditional; f. Exemption can be for whole or any part of the tax leviable; g. Exemption takes effect from the date of notification or from a date specified in the notification subsequent to the date of notification; Mandatory availment of exemption It is mandatory to avail an absolute exemption exempting the goodsor services or both from the whole of the tax leviable thereon in view of the explanation. However in case the exemption is condition based, such exemption would not be mandatory. Mandatory exemption has been provided to avoid any person paying the tax on exempted supplies and thereby encash higher input tax credit. However this explanation would add to cascading of taxes. Exemption by special order on a case to case basis The Government has been given powers to issue a special order on a case-to-case basis. Conditions are: a. Exemption should be in public interest; b. Exemption has to be granted on the recommendation of the GST Council; c. Exemption granted may be for any taxable goods and / or services; 97 P a g e

98 d. Such order can be issued under circumstances of exceptional nature specified in the order. Power to insert explanation after issue of notification or special order. Notification can be with effect from the date of issue or any date subsequent thereto as may be specified in the said notification. This means that no retrospective notification can be issued. Sub-section 3 of the section, empowers Central or the State government to insert explanation for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2). According to the sub-section, a. Such an explanation can be inserted at any time within one year of issue of the notification; b. Explanation has to be inserted by issue of a notification or a special order as the case may be; c. The explanation shall have effect as if it had always been the part of first such notification or order, as the case may be; Effective date of notification The effective date of the notification or the special order would be the date which is so mentioned in the notification or special order. However, if no date is mentioned therein, a. it would be date of its issue for publication in the official gazette; b. Date on which it is made available on the official website of the Government Department. Sometimes the exemption notification may be given retrospectively from the earlier date. Unless explicitly mentioned in the notification, the effect of notification is always prospective only. Details relating to availability of exemption Exemption to small scale goods or service or both suppliers has been made available in the GST law in Section 22 of the CGST Act, 2017 which provides the non-requirement of being a taxable persons instead of issue of exemption notification. The provisions relating to Registration in the GST law are inter alia applicable to IGST. According to section 22 and 24 of the CGST Act, persons liable to be registered are: 98 P a g e

99 a. Every supplier shall be liable to be registered under this Act from/in the State from where he makes a taxable supply of goods or services or both if his aggregate turnover in a financial year exceeds twenty lakh rupees; However where such person makes taxable supplies from the special category states viz. Assam, Arunachal Pradesh, Meghalaya, Manipur, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand, Himachal Pradesh, Jammu and Kashmir if his aggregate turnover in a financial year exceeds ten lakh rupees. The aggregate turnover shall include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals. The supply of goods, after completion of job-work, by a registered job worker shall be treated as the supply of goods by the principal referred to in section 143, and the value of such goods shall not be included in the aggregate turnover of the registered job worker. Aggregate turnover means the aggregate value of all taxable supplies made by the taxable supplies, whether on his own account or on behalf of his principals. b. The following persons shall not be liable to registration and hence are not liable to pay tax any person engaged exclusively in the business of supplying goods and/or services that are not liable to tax or are wholly exempt from tax under this Act; an agriculturist, to the extent of the supply of produce cultivated out of land. Following categories of persons shall be required to be registered under this Act irrespective of the threshold turnover of 20 lakhs & 10 Lakhs as the case may be and hence would be taxable persons. Such persons need not pay tax only if the goods or services or both are exempt or the category to which they belong to is not liable to payment of tax. (i) persons making any inter-state taxable supply (however for the Service providers even though they are providing the inter supply the mandatory requirement of registration is relaxed) (ii) casual taxable persons (iii) persons who are required to pay tax under reverse charge; (iv) E-commerce operator who are required to pay tax under 9(5) of the CGST Act, 2017 as notified; (v) non-resident taxable persons; 99 P a g e

100 (vi) persons who makes taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise (vii) input service distributor, whether or not separately registered under the Act; (viii) persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52,. For the service providers supplying the service through ECO, having annual aggregate turnover less than Rs. 20 Lakh relaxation has been granted from the requirement of mandatory registration vide 65/2017- Central Tax dated (ix) every electronic commerce operator (x) every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person (xi) such other person or class of persons as may be notified by the Central Government or a State Government on the recommendation of the Council. In 22 nd GST council meeting it is decided to provide exemption to GTA services provided to unregistered person. Further Job worker supplying inter-state the job work services or supplier supplying the handicrafts over the inter-state is also exempted from the requirement of registration and thereby the payment of tax. This exemption applies only when the aggregate turnover in a year not exceeds Rs. 20,00,000/-. Service Tax Exemption withdrawn under GST There are certain services which were exempted from payment of tax under Service Tax regime, However, such exemption is not available under GST. Therefore, GST needs to be discharged at applicable rate on such services provided with effect from Many unwary service providers maybe under the impression that all the exemptions have been continued. This is not true. Cases where Exemptions not carried forwarded from Service Tax Law are listed below. a) Trading of Goods: Earlier Covered under Negative list Sec 66D (e) of Finance Act Sale of goods amount to Supply as defined under Sec 7 of the CGST Act and hence Taxable. Trading of goods was subject to Sales Tax/VAT and hence not liable for 100 P a g e

101 Service Tax due to constitutional restriction on Central to levy tax on State matters. Constitution has been amended to enable both State and Centre to levy tax on sale of goods. Accordingly, GST would be applicable on sale of goods unless specifically exempted elsewhere. b) Services by way of Carrying out any process amounting to manufacture or production of goods. Not relevant as trading and manufacture and service merged into supply. : - Earlier Covered under Negative list Sec 66D (f) of Finance Act c) Selling of Space for advertisement in Print Media - Earlier Covered under Negative list Sec 66D (g) of Finance Act. Newspapers would be liable albeit at only 5%. d) Betting, Gambling and Lottery - Earlier Covered under Negative list Sec 66D (i) of Finance Act e) Services provided to the United Nations or a specified International Organisation - Earlier exempted vide entry 1 of the Mega Exemption Notification 25/2012-ST f) Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a. a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); b. canal, dam or other irrigation works; c. pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or Earlier exempted vide entry 12A of the Mega Exemption Notification 25/2012-ST g) Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a. a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; 101 P a g e

102 b. a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or c. a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause (44) of section 65 B of the said Act; under a contract which had been entered into prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date: provided that nothing contained in this entry could apply on or after the 1st April, 2020; Earlier exempted vide entry 12A of the Mega Exemption Notification 25/2012-ST h) Specific services to specified categories Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of (a) Road, bridge, tunnel, or terminal for road transportation for use by general public; (b) A Civil Structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana; (c) Building owned by an entity registered under section 12AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public; (d) A pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant for funeral, burial or cremation of deceased. Earlier exempted vide entry 13 of the Mega Exemption Notification 25/2012-ST i) Exemption to Construction Services: Services provided by way of construction, erection, commissioning, installation, of original works pertaining to (a) Railways, including monorail or metro; (b) A single residential unit otherwise than as a part of a residential complex; (c) Low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; 102 P a g e

103 (d) Post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or (e) Mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages; Earlier exempted vide entry 14 of the Mega Exemption Notification 25/2012-ST j) Services by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port provided under a contract which had been entered into prior to 1st March 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date: provided that Ministry of Civil Aviation or the Ministry of Shipping in the Government of India, as the case may be, certifies that the contract had been entered into before the 1st March 2015: Provided further that nothing contained in this entry could apply on or after the 1st April 2020 Earlier exempted vide entry 14A of the Mega Exemption Notification 25/2012-ST k) Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright- (a) covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical or artistic works; or (b) of cinematograph films for exhibition in a cinema hall or cinema theatre;] Earlier exempted vide entry 15 of the Mega Exemption Notification 25/2012-ST l) Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central airheating in any part of the establishment, at any time during the year Earlier exempted vide entry 19 of the Mega Exemption Notification 25/2012-ST m) 19A. Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year Earlier exempted vide entry 19A of the Mega Exemption Notification 25/2012-ST 103 P a g e

104 n) Services by way of transportation by rail or a vessel from one place in India to another of the chemical fertilizer and oil Cakes, Cotton ginned or baled. Earlier exempted vide entry 20(j) & (k) of the Mega Exemption Notification 25/2012-ST o) Services provided by a goods transport agency, by way of transport in a goods carriage of chemical fertilizer and oil Cakes, Cotton ginned or baled. Earlier exempted vide entry 21(e) & (i) of the Mega Exemption Notification 25/2012-ST p) Certain Service Provided to Government (b) Repair or maintenance of a vessel services provided to Government, a local authority or a Governmental Authority Earlier exempted vide entry 25 (b) of the Mega Exemption Notification 25/2012-ST q) Services by the following persons in respective capacities - (a) sub-broker or an authorised person to a stock broker; (b) authorised person to a member of a commodity exchange; (c) selling agent or a distributer of SIM cards or recharge coupon vouchers; (d) sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt; Earlier exempted vide entry 29(a)(b)(f) & (h) of the Mega Exemption Notification 25/2012- ST r) Services by way of carrying out, (i) any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption; or (ii) any intermediate production process as job work not amounting to manufacture or production in relation to a. printing or textile processing; b. cut and polished diamonds and gemstones; or plain and studded jewelry of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act, 1985 (5 of 1986); c. any goods excluding alcoholic liquors for human consumption, on which appropriate duty is payable by the principal manufacturer; or 104 P a g e

105 d. processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;.] Earlier exempted vide entry 30 of the Mega Exemption Notification 25/2012-ST s) Services by operator of Common Effluent Treatment Plant by way of treatment of effluent; Earlier exempted vide entry 43 of the Mega Exemption Notification 25/2012-ST t) Service provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members; Earlier exempted vide entry 46 of the Mega Exemption Notification 25/2012-ST u) Services by way of right to admission to exhibition of cinematographic film Earlier exempted vide entry 47 (i) of the Mega Exemption Notification 25/2012-ST 105 P a g e

106 11. Input Tax credit under GST Regime The Cenvat credit scheme under present law was intended to be a beneficial scheme to allow the supplier of taxable goods and/or services to avail Cenvat credit, including on input services related to business. However, Cenvat credit rules have placed several artificial restrictions on availment of input service credit on construction [other than to persons engaged in taxable services of construction/works contract], motor vehicles related credit and employee credit on expenses primarily incurred in relation to business. The restrictions lead to break in the credit chain and consequent cascading effect, leading to increase in costs of goods and services. There has been expectation under GST that credit connected to business would be allowed without any restrictions. Every registered taxable person who carries on any business at any place in India/ State, shall be entitled to take credit of input tax admissible to him which shall be credited to the electronic credit ledger of such person. The amount of credit of IGST available in the electronic credit ledger shall first be utilized towards payment of IGST, CGST and SGST, in that order. The amount of credit of CGST shall first be utilized towards payment of CGST and the amount remaining, if any, towards the payment of IGST. The input tax credit on account of CGST shall not be utilized towards payment of SGST. Input Tax-2(62) "Input tax" in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST or UTGST charged on any supply of goods or services or both to him and includes a. IGST charged on import of goods b. the tax payable under sub-section (3) and (4) of section 9; c. the tax payable under sub-section (3) and (4) of section 5 of IGST Act; d. the tax payable under sub-section (3) and (4) of section 9 of SGST Act; or e. the tax payable under sub-section (3) and (4) of section 7 of UTIGST Act f. but does not include the tax paid under composition levy; 106 P a g e

107 Section 2(63) input tax credit means credit of input tax Section 2(17) - Business is defined in inclusive manner as under: a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit, b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; e) provision by a club, association, society, or any such body (for subscription or any other consideration) of the facilities or benefits to its members; f) admission, for a consideration, of persons to any premises; and g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation h) services provided by a race club by way of totalisator or a licence to book maker in such club; and i) any activity or transactions undertaken by Central Government, a State Government or any local authority in which they are engaged as public authorities; Definition of Capital goods Section 2(19) Capital goods means: Goods, the value of which is capitalized in the books of accounts of the person claiming input tax credit and which are used or intended to be used in the course or furtherance of business; Definition of Inputs - Section 2 (59) Input means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Definition of Input service Section 2 (60) 107 P a g e

108 Input service means any service, used or intended to be used by a supplier in the course or furtherance of business. Section 16: Eligibility and conditions for taking input tax credit (1) Every registered taxable person can avail credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person subject to such conditions and restrictions as may be prescribed and within the time and manner specified. (2) Registered person shall not be entitled to the credit of any input tax in respect of any supply of goods or services to him unless,- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying document(s) as may be prescribed; (b) he has received the goods or services or both; For the purpose of this clause, If the goods are delivered by the supplier to recipient or any other person on the direction of such registered person acting as an agent or otherwise, before during the movement of goods either by way of transfer of documents of title to goods or otherwise, then it shall be deemed that the registered person received the goods. Eg: X a supplier transfers documents to Z on the direction of Y who is a registered person. Z receives the documents on behalf of Y, then it shall be deemed that Y has received the goods/documents.(c) the tax charged in respect of such supply has been actually paid to the account of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and (d) he has furnished the return under section 39: Where goods received in lots: Where the goods against an invoice are received in lots or instalments, the registered taxable person shall be entitled to take credit upon receipt of the last lot or instalment. When recipient not paid amount towards supply of service/goods + tax within 180 days: Where a recipient fails to pay to the supplier of goods /services / both other than those supplies on which tax payable under reverse charge basis, the amount towards the value of 108 P a g e

109 supply of services along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in the manner as may be prescribed. Recipient shall be entitled to avail the input tax credit on payment made by him towards the value of supplies along with taxable person. For this purpose, interest paid is not eligible to take credit (3) No claiming depreciation under IT act on capital goods: Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component. Eg: Plant & machinery of Rs Add: Tax Total Less: Depreciation (10%) 10, Total 9900 In the above example ITC cannot be availed on the tax component i.e., Rs 1000 (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services after furnishing of the return for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier. 17. Apportionment of credit and blocked credits (1) Goods and or services used partly for business and other purpose: Where the goods and/or services are used by the registered taxable person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business. 109 P a g e

110 (2) Goods and or services used partly for taxable including zero rated supplies and partly for exempt supplies: Where the goods and / or services are used by the registered taxable person partly for effecting taxable supplies including zero-rated supplies under this Actor under the IGST Act, 2016 and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. Exempt supplies shall include supplies on which recipient is liable to pay tax on reverse charge basis, transaction in securities, sale of land and sale of building. These things would be considered as exempted supply only for the purpose of apportionment of credits. exempt supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply (Section 2(47)); A banking company or a financial institution including a non-banking financial company, which is engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either given under (2) above, or avail of, every month, an amount equal to 50% of the eligible input tax credit on inputs, capital goods and input services in that monthand the rest shall lapse. The option once exercised as above shall not be withdrawn during the remaining part of the financial year. Further, the tax payer is required to follow the procedure provided in Rule 42 with respect to common inputs / input services and Rule 43 with respect to common capital goods as prescribed in CGST Rules, Apportionment of ITC w.r.t common inputs and input services The apportionment of ITC arises in a situation wherein tax payer is engaged in both taxable as well exempted supplies. Further rule 42 of CGST Rules, 2017 prescribes method to arrive at ITC which is in proportion to the exempted supply and such ITC would be added to Electronic Liability Register of the tax payer. Rule 42, first requires the tax payer to bifurcate his ITC transactions in the following manner: T: Total input tax credit involved on inputs and input services of a tax period 110 P a g e

111 T1: Inputs and input services intended to be used exclusively for the purposes other than business. T2: Inputs and input services intended to be used exclusively for effecting exempted supplies. T3: Blocked credits under section 17(5) of CGST Act, 2017 C1: The amount of input tax credit credited to Electronic Credit Ledger of registered person [T-(T1+T2+T3)] T4:Inputs and input services intended to be used exclusively for effecting other than exempted supplies but including Zero rated supplies. C2: is the common input tax credit involved in inputs and input services used for both taxable and exempted supplies C2 = C1-T4 D1: Amount of ITC attributable towards exempted supplies (to be added to Electronic Liability Register of tax payer) D1 = (E/F)*C2 E = the aggregate value of exempt supplies during the tax period F = the total turnover in the State of the registered person during the tax period C2 = common ITC on inputs and input services If case the aggregate turnover of exempted or taxable supply is not available for any tax period, then the tax payer is required to consider the turnover of such tax period wherein both E and F is available. Further the computation done as above for each tax periods for CGST/SGST/IGST/UTGST and again the said computation is required to be done at the end of the year and in case excess ITC availed, then the same is required to be payable with interest. Further, if there is any input and input services which are used commonly for both taxable and exempted supplies, in such situation the tax payer is required to pay 5% of C2. Apportionment of ITC w.r.t common capital goods Rule 43 of CGST Rules, 2017 prescribes methodology to avail the ITC on common capital goods used for both exempted and taxable supplies. The method provided in the said rule is as follows: 111 P a g e

112 - The ITC on the common capital goods would be credited to Electronic Credit Ledger - The life of the capital goods would be considered as 5 years. - Total ITC on common capital goods should be divided by 60 months, Ex: Total ITC is Rs.60,000/- is to be divided by 60 months accordingly monthly credit would be Rs.1000/- - The ITC attributable to exempted supplies is required to add to Electronic Liability Register. I.e., Rs.1000*exempted turnover / Total turnover - This formula is required to applied for the subsequent 60 months and each month how much ever attributable to exempted turnover is required to be paid along with interest. Input tax credit shall not be available in respect of the following: (a) motor vehicles and other conveyances except when they are used (i) for making the following taxable supplies, namely (A) further supply of such vehicles or conveyances ; or (B) transportation of passengers; or (C) imparting training on driving, flying, navigating such vehicles or conveyances; (ii) for transportation of goods. (b) supply of goods and services, namely, (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward registered taxable person for making an outward taxable supply of the same category of goods or services; (ii) membership of a club, health and fitness centre, (iii) rent-a-cab, life insurance, health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; and (iv) travel benefits extended to employees on vacation such as leave or home travel concession. (c) works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service; (d) goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business; 112 P a g e

113 For the purpose of the above clause, the word construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the immovable property. (e) goods or services on which tax has been paid under section 9; (f) goods or services used for personal consumption; (g) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and (h) any tax paid in terms of sections 67, 89 or 90. (5) The Central or a State Government may, by notification issued in this behalf, prescribe the manner in which the credit referred to in sub-sections 17(1) and (2)above may be attributed. Plant and Machinery means apparatus, equipment, machinery, pipelines, telecommunication tower fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes a.land, building or any other civil structures b. Telecommunication tower c. Pipelines laid outside the factory premises 18. Availability of credit in special circumstances (a) Credit to person who applied and got registration within 30 days from when liable for registration: A person who has applied for registration under the Act within 30 days from the date on which he becomes liable to registration and has been granted such registration shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act. (b)voluntary registration: A person, who takes voluntary registration shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of grant of registration. 113 P a g e

114 (c) Person ceases to pay composition levy tax: Where any registered taxable person ceases to pay tax under section 10, he shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay composition tax. The credit on capital goods shall be reduced by such percentage points as may be prescribed in this behalf (d) When exempt supplies become taxable: Where an exempt supply of goods or services by a registered taxable person becomes a taxable supply, such person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable. The credit on capital goods shall be reduced by such percentage points as may be prescribed in this behalf. (2) A taxable person shall not be entitled to take input tax credit under sub-section (1), in respect of any supply of goods and /or services to him after the expiry of one year from the date of issue of tax invoice relating to such supply. (3) Change in constitution: Where there is a change in the constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision for transfer of liabilities, the said registered taxable person shall be allowed to transfer the input tax credit that remains unutilized in its books of accounts to such sold, merged, demerged, amalgamated, leased or transferred business in the manner prescribed. (4) Switch over from normal scheme to composition scheme of paying tax: Where any registered person who has availed of input tax credit switches over as a taxable person for paying tax under section 10 or, where the goods and/ or services supplied by him become exempt, he shall pay an amount, by way of debit in the electronic credit or cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such 114 P a g e

115 percentage points as may be prescribed, on the day immediately preceding the date of such switch over or, as the case may be, the date of such exemption. After payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse. (5) The amount payable under sub-section (1) shall be calculated in such manner as may be prescribed. (6) In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by the percentage points as may be specified in this behalf or the tax on the transaction value of such capital goods or plant and machinery, whichever is higher. Where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods. Taking input tax credit in respect of inputs sent for job work Section 19 (1) The principal referred to in section 143 shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on inputs sent to a job-worker for job-work. (2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job-work without their being first brought to his place of business. (3) Where the inputs sent for job-work are not received back by the principal after completion of job-work or otherwise or are not supplied from the place of business of the job worker in accordance with clause (b) of sub-section (1) of section 143 within a period of one year of their being sent out, it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when the said inputs were sent out: Where the inputs are sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker. 115 P a g e

116 (4) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on capital goods sent to a job-worker for job-work. (5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job-work without their being first brought to his place of business. (6) Where the capital goods sent for job-work are not received back by the principal within a period of three years of their being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job-worker on the day when the said capital goods were sent out: Where the capital goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of capital goods by the job worker. (7) Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job-worker for job-work Manner of distribution of credit by Input Service Distributor Section 20 (1) The Input Service Distributor shall distribute, in such manner as may be prescribed, the credit of CGST as CGST or IGST and IGST as IGST or CGST, by way of issue of a prescribed document containing, inter alia, the amount of input tax credit being distributed or being reduced thereafter, where the Distributor and the recipient of credit are located in different States. (CGST ACT) (2) The Input Service Distributor may distribute the credit subject to the following conditions, namely: a. the credit can be distributed against a prescribed document issued to each of the recipients of the credit so distributed, and such document shall contain details as may be prescribed; b. the amount of the credit distributed shall not exceed the amount of credit available for distribution; c. the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient; d. the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed only amongst such recipient(s) to whom the input service 116 P a g e

117 is attributable and such distribution shall be pro rata on the basis of the turnover in a State of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period; e. the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period. Explanation 1. For the purposes of this section, the relevant period shall bea. if the recipients of the credit have turnover in their States in the financial year preceding the year during which credit is to be distributed, the said financial year; or b. if some or all recipients of the credit do not have any turnover in their States in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed. Explanation 2. - For the purposes of this section, recipient of credit means the supplier of goods and / or services having the same PAN as that of Input Service Distributor. Explanation 3. For the purposes of this section, turnover means value of turnover, reduced by the amount of tax, duty or tax levied underentry 84 of List I of seventh schedule and entry 51 & 54 of List II of the said schedule of the Constitution Manner of recovery of credit distributed in excess Section 21 Where the Input Service Distributor distributes the credit in contravention of the provisions contained in section 21 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipient(s) along with interest, and the provisions of section 73 or 74, as the case may be, shall apply mutatis mutandis for effecting such recovery. Conclusion The credit under GST was expected to be available as long as goods/ services used in or in relation to business. The carrying forward of the old restrictions in the GST law means that to some extent the old case laws would all be revisited. It is advisable that manufacturers, 117 P a g e

118 service providers ensure eligible credit which were missed out to be availed in past is availed now (before 31st March 2017) without fail. This is to take advantage of a facility given for c/f of the eligible credit availed in last return filed before April 2017 as opening balance of credit under GST law. 118 P a g e

119 12. Composition Scheme Section 10 of CGST Act provides for a composition scheme to taxable persons. The provisions are discussed below: Tax payment under this scheme is an option available to the registered taxable person. Permission can be given by the proper officer of Central or State Government. GST council recommendation is necessary. Conditions and restrictions would be prescribed. Aggregate turnover of the taxable person in the preceding financial year should have been less than Seventy Five lakh rupees. The limit has been increased to Rs.1 crore vide notification no. 46/2017-CT dated In case of special category states, the threshold limit increased to Rs. 75 lakh from Rs.50 lakh earlier vide notification no. 46/2017-CT dated The taxable person opting for the scheme would be required to pay specified amount in lieu of tax. Rate of tax in the case of o a manufacturer, 2% (1% of CGST &1% of SGST/UTGST) of the turnover in a State during the year is the amount payable in lieu of tax. o 5% (2.5% of CGST and 2.5% SGST/UTGST) in case of supply of food and beverages. o In any other case other than service providers, 1% (0.5% of CGST & 0.5 of SGST/UTGST) of the turnover in a State during the year is the amount payable in lieu of tax in any other case. Once permission is granted, the eligibility would be valid unless permission is cancelled under law or the taxable person becomes ineligible. No such permission shall be granted to a taxable person unless all the registered taxable persons, having the same PAN as held by the said taxable person, also opt to pay tax under composition scheme. Form GST CMP-01 and GST CMP-02 has to be filed electronically for opting composition scheme. The due date for opting is extended till 31 March 2018 vide notification no. 45/2017-CT dated The composition dealer has to file quarterly return in FORM GSTR-4 before 18 th of quarter ending, for the month of July to September the due date to file the return is 119 P a g e

120 15/11/2017 vide notification no. 41/2017-CT dated further the due date is extended till vide notification no 59/2017-CT dated In case the composition scheme option is opted in second or third month of a quarter, then such tax payer needs to file GSTR-4 for the period for which he has opted for composition scheme. For previous pending period, the regular return to be filed. The scheme is not eligible for service providers except for suppliers of food may or may not be as part of services (such as restaurants). There was a doubt as to eligibility of scheme for those who are having service income by way of extending deposits to banks for which interest is being received. An order No. 01/2017-CT dated has been issued clarifying that such income representing interest or discount would not be considered to decide on eligibility. As a result such interest income would not make the tax payer ineligible for composition scheme. If assessee wishes to continue under composition scheme he has to file FORM GST ITC-03 within 60days from the commencement of the relevant financial year. The person who opts for composition from 01 st October 2017 has to file FORM GST ITC-03 within 90days from said date and he is not allowed to file TRAN-01. Further, who opted for composition scheme he has to file FORM GST CMP-03 (stock details Including goods purchased from unregistered person held by him on the preceding date from which he opts for composition) within 90 days from the date of which composition levy exercised. The person/s who were eligible to opt out from the composition scheme, they were required to file declaration in form GST ITC-01 to avail credit on input, input held in semi-finished and input held in finished goods. The due date for filing such declaration form is extended to vide notification no. 44/2017-CT dated the submission of GST ITC-01 further extended upto vide notification 52/2017 CT dated Conditions and restrictions for composition levy.- (a) Casual taxable person and non-resident taxable person can t opt for composition scheme. (b) Following goods should not be held in closing stock on the appointed day which have not been purchased or procured as below when the option is exercised: In the course of inter-state trade or commerce or Imported from a place outside India or 120 P a g e

121 Received from his branch situated outside the State or From his agent or principal outside the State, (c) The closing stock held should not have purchased from unregistered dealer and if it is purchased the same has to be paid under sub-section (4) of section 9. This condition could be ineffective as Section 9(4) would not be operative till 31 March 2018 vide notification no. 38/2017-CT(R) dated (d) The composition dealer should discharge tax under Section 9 (3).; (e) The composition dealer is not engaged in the manufacture of following goods as notified under clause (e) of sub-section (2) of section 10, during the preceding financial year; Ice cream and other edible ice, whether or not containing cocoa, Pan masala and 24 All Goods, i.e. Tobacco and manufactured tobacco substitutes (f) The composition dealer shall mention the words composition taxable person, not eligible to collect tax on supplies at the top of the bill of supply issued by him; and (g) The composition dealer shall mention the words composition taxable person on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business. No permission shall be granted to a taxable person- (a) who is engaged in the supply of services (except food supply as part of service such as restaurant); or (b) who makes any supply of goods which are not leviable to tax under this Act; or (c) who makes any inter-state outward supplies of goods; or (d) who makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 56; or (e) who is a manufacturer of Tariff heading Ice cream and other edible ice, whether or not containing cocoa, Pan masala and 24 All Goods, i.e. Tobacco and manufactured tobacco substitutes. Any other goods which will be notified on the recommendation of the Council: Other provisions 121 P a g e

122 The permission granted to a registered taxable person shall stand withdrawn from the day on which his aggregate turnover during a financial year exceeds seventy five lakh or one crore rupees. A taxable person permitted to avail the composition scheme shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. If the proper officer has reasons to believe that a taxable person was not eligible to pay tax under composition scheme, such person shall, in addition to any tax that may be payable by him under other provisions of this Act, be liable to a penalty and the provisions of section 66 or 67, as the case may be, shall apply. Principles of natural justice have to be followed before proceeding with the demand and imposition of penalty. Changes recommended by 23 rd GST Council in Composition Scheme (a) Uniform rate of 1% under composition scheme for both manufacturers and traders (b) For traders, turnover will be counted only for supply of taxable goods. Now composition dealers required to pay tax on total turnover irrespective of exemptions. (c) Supply of services by Composition taxpayer upto Rs 5 lakh per annum will be allowed by exempting the same. Now dealer having service turnover not eligible for composition benefits. (d) Annual turnover eligibility for composition scheme will be increased to Rs 2 crore from the present limit of Rupees 1 crore under the law. (e) Thereafter, eligibility for composition will be increased to Rs. 1.5 Crore per annum. (f) The changes recommended by GST Council at (d) & (e) above will be implemented only after the necessary amendment of the CGST Act and respective SGST Acts. Conclusion We have examined basic concept of levy and composition levy under GST law. Businesses would consolidate and be under the regular scheme so that their supplies to other businesses are safeguarded with lesser cost of production due to credits on procurements. Composition would probably be only for supplies to final consumers with less credits on procurements. 122 P a g e

123 13. Reverse Charge Background In indirect taxation regime, the tax is collected and paid by the supplier of goods or services. In certain cases, the recipient is made liable to pay tax as a recipient of supply of goods or services. As the recipient is made liable to pay tax instead of supplier, this mechanism is called as reverse charge mechanism. The concept of reverse charge is not new and it was there even under service tax and VAT law. Even under central excise law, buyer of molasses was liable to pay tax under reverse charge. In VAT, the concept of reverse charge was applicable whenever goods were purchased from unregistered dealer and in service tax few category of services were prescribed for paying tax under reverse charge. In the same manner, even under GST certain category of services or goods have been prescribed on which tax to be paid by recipient or buyer. Why is reverse charge needed? In any economy, there are certain unorganized sectors where it may be difficult for government to collect the tax from supplier. Furthermore, the cost of tax collection may exceed corresponding revenue. But it may not be economically advisable to keep the sector out of tax net. To overcome the challenges, the concept of reverse charge is introduced for better tax coverage and compliance. Reverse charge has been defined under section 2(98) of GST Law which means, - On such category of supplies to be notified under section 9(3) or 9(4)of GST Act or section 5(3) or 5(4) of IGST Act ; - The recipient of supply of goods or services; - Is liable to pay tax; - Instead of supplier of such goods or service. This concept is set out in GST Law by virtue of Section 9(3) of GST Law which empowers the central/state government to specify/notify such category of supply of goods or services on which tax is to be paid by the recipient of supply. All the provisions of GST Law would be applicable to recipient as if he is the person liable to pay the tax. 123 P a g e

124 Notification can be issued by the Government on recommendation of the council as to which all the supplies the said reverse charge under 9(3) would be applicable. Few of the services which are covered in GST are GTA, Legal service, Director services, sponsorship service and import of service etc., which are similar to the earlier service tax law. Exemption up to aggregate turnover of Rs. 20L / 10L The recipient who is made liable to pay tax on inward supply of goods and / or services is not eligible to avail the exemption upto 20L / 10L as prescribed in section 22 of the GST Law. Required to obtain registration: The person who is made liable to pay tax under reverse charge is compulsorily required to obtain registration under GST without any limit under GST Law. Returns: The person who is made liable to pay tax under reverse charge is required to file the returns as prescribed under section 37 to 48 Reverse charge in case of receipt of supply from unregistered person: Section 9(4) of CGST Act provides that In respect of the supply of taxable goods or services or both By a supplier, who is not registered, To a registered person Shall be paid by such registered person on reverse charge basis And all the provisions of this act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services. Section 5(4) of IGST Act provides for same requirement in case of inter-state transactions. The liability under Section 9(4) of CGST / SGST Act and Section 5(4) of IGST Act has been kept on hold till 31 March 2018 vide notification no. 38/2017-CT(R) dated Procedural Requirements: (a) Tax invoice shall be issued for such reverse charge payments and details to be disclosed in GSTR-2 of the relevant month. However, a monthly consolidated invoice can be issued for all such purchases above the exemption limit. 124 P a g e

125 (b) Payment voucher shall be issued at the time of making payment to vendor. Option of monthly consolidated voucher has not been provided like invoices. (c) Rates and HSN codes of supplies received to be identified by receiver to compute the tax payable thereon. Exemptions: (a) Rs. 5,000 per day for all supplies in aggregate- Notification 8/2017-Central Tax has provided per day exemption of Rs. 5,000. This limit is to be computed by deducting exempt supplies, nil rated supplies and Non-GST supplies. It is understood that the exemption limit is per registration. (b) Postponement of levy With effect from 13 October 2017, the reverse charge levy of GST under Section 9(4) of CGST / SGST or 5(4) of IGST has been kept on hold till 31 March 2018 vide notification no. 38/2017-CT(R) dated by amending notification no. 8/2017-Central Tax. Compliance Aspects: (a) Payment to be made in cash- All reverse charge GST payments to be madethrough electronic cash ledger only. In other words, input tax credit cannot be utilised to payoff reverse charge liability. (b) ITC available in the same month-subject to eligibility, input tax credit would be available in the same month itselfunlike the service tax law where credit was usually available in subsequent month. Disclosure in returns-only aggregate tax amounts of reverse charge transactions has to be mentioned in GSTR-3B. Detailed information regarding supplier name, invoice number, invoice date, invoice value, place of supply has to be disclosed in GSTR-2. Point of time when liability arises in case of reverse charge mechanism In case of goods In case of supply of goods liable under reverse charge mechanism, the time of supply shall be earliest of the following dates: (a) the date of the receipt of goods, or (b) the of payment as entered in the books of account of the recipient, or the date on which the payment is debited in his bank account, whichever is earlier 125 P a g e

126 (c) the date immediately following thirty days from the date of issue of invoice by the supplier. Where it is not possible to determine the time of supply under clause (a), (b) or (c), the time of supply shall be the date of entry in the books of account of recipient of supply. In case of services In case of supplies of services in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely- (a) the date on which the payment as entered in the books of account of the recipient, or the date on which the payment is debited in his bank account, whichever is earlier, or (b) the date immediately following sixty days from the date of issue of invoice by the supplier: Where it is not possible to determine the time of supply under clause (a) or (b), the time of supply shall be the date of entry in the books of account of the recipient of supply. There is further provision in case of associated enterprises where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier. Other relevant aspects: For compliance under reverse charge mechanism, the following aspects are relevant: a. Registration under GST is compulsory for tax payable under reverse charge basis irrespective of threshold limit. b. Composition scheme is not available for tax payable under reverse charge basis. c. Input tax includes the tax payable under reverse charge basis. Hence, recipient of goods and/or services is eligible to claim credit of tax paid by both supplier and also recipient by himself. d. If in any case where the goods and/or services are used partly for making taxable supplies including zero-rated supplies and partly for making exempted supplies than credit of tax payable on supplies under reverse charge for making exempted supplies is not available to the recipient of goods and/or services. e. Aggregate turnover does not include the value of supplies on which tax is levied on reverse charge basis. f. The recipient of goods and/or services is liable to pay tax irrespective of fact whether the supplier of goods and/or services is considered to be taxable person or not. 126 P a g e

127 Other Concepts: 1. The inward supply of goods or services on which tax is made liable to be paid by the recipient is not required to be included in computation of aggregate turnover which could be relevant for audit, composition scheme option etc. 2. Even for payment of tax under reverse charge the concept of time of supply would be applicable. 3. As per section 17 of GST Law wherein the recipient is made liable to pay the tax under reverse charge, such turnover would be considered as exempted turnover in the hands of supplier of goods or services. 127 P a g e

128 14. Imports / Exports Import of Goods and Services: Background: In the Erstwhile regime of taxation of services ocean, freight and air freight payable on import of goods into India was kept out of service tax net by placing them in negative list. Under customs law, import of goods means bringing into India from place outside India. Import starts when goods cross the customs barrier in a foreign country and ends when they cross customs barrier in the importing country, India. When goods are imported into India, the goods are said to have crossed the customs barrier after the duty is paid and the goods are brought out of the limits of the customs station. Sale in course of import There was a concept of sale or purchase in course of import in erstwhile VAT and sales tax laws. The concept of sale or purchase in course of import was: 1) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.; 2) In terms of the above definition, a transaction can be considered as sale or purchase of goods in the course of import, only if Sale or purchase occasion the import; or Sale or purchase is effected by a transfer of documents of title to the goods before the said goods have crossed the customs frontiers of India Import of goods under GST Section 2(10) of IGST Act: Import of goods with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India; Under GST law, by virtue of Customs Act, supply of goods imported into India shall be treated as inter-state supply of goods and BCD and IGST shall be levied on the transaction value. However Pre-GST the importer used to pay BCD, CVD, education cess and Special Additional duty, on the transaction value. 128 P a g e

129 Considering the fact that Article 286(1)(b) of Constitution of India states that no Law of state shall impose or authorise the imposition of tax on sale or purchase of goods where such sale or purchase takes place in course of import of goods into or export of goods out of territory of India. Therefore the sale in the course of import into India, shall not be subjected to customs duty and GST twice, meaning customs duty and IGST shall be paid only once on transaction value at the time of clearing the imported goods from the Indian Customs frontier. Taxability of High Sea Sale: In terms of section 7(2) of IGST, supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce. High Sea Sale carried out by the carrier document consignee to another buyer while the goods are on high seas or after their dispatch from the port/airport of origin and before their arrival at the port/ airport of destination. In terms of Section 7(2) of IGST, high sea sales cannot be subjected to GST in India, as the imported goods in question before crossing the territory of India and before crossing the Indian custom frontier was sold. However upon crossing the Indian customs frontier, the new buyer of goods as a result of high sea sales, shall discharge BCD and IGST on the transaction value. The CBEC has issued Circular No. 33/ 2017-Cus dated 01 August 2017, has clarified that in respect of high seas sale of imported goods, IGST would be levied only once, at the time of customs clearance. This circular is based on the provisions of the Customs Tariff Act, 1975 and the decision of the GST Council. The clarification is summarised below: (a) High sea sale of imported goods are akin to inter-state transactions. IGST on high sea sales of imported goods, shall be levied and collected only at the time of importation (i.e. when the import declarations are filed before the customs authorities for customs clearance the first time). 129 P a g e

130 (b) The value addition accruing in each high sea sale transaction shall also form part of the value for levy of IGST. The importer (i.e., the last buyer in the chain) would be required to furnish the entire chain of documents, such as original invoice, high sea sale contract, details of service charges/ commission paid, etc., to establish a link between the first contracted price of the goods and the last transaction. (c) The valuation would be as per the provisions of the customs law and the declared value can be rejected if there is doubt on its truth and accuracy. However the Circular No. 46/2017-Customs dated clarified that IGST/GST is applicable on goods transferred / sold while being deposited in a warehouse. So, bond to bond transfer of goods are liable for GST. Import of services: In Erstwhile service tax law, in respect of any taxable services provided or agreed to be provided by any person located in a non-taxable territory and received by any person who is located in taxable territory, the service receiver in India is liable to make payment of service tax under reverse charge, provided the place of provision of service was in India. Service tax was payable by recipient of service in respect of services received in taxable territory of India. Place of provision of service, was determined, by referring to the Place of Provision of service Rules. Applying the principles laid down in the said rules, if the place of provision of service was outside the taxable territory. Then there does not exist any service tax taxability in hands of service receiver in India under reverse charge mechanism. Import of services under GST Supply of services in the course of import into the territory of India shall be deemed to be a supply of services in the course of inter-state trade or commerce, subject to place of provision of Service in India Section 2(11) of IGST act: import of service means the supply of any service, where (a) the supplier of service is located outside India, (b) the recipient of service is located in India, and (c) the place of supply of service is in India; Analysis: The fundamental principle is that tax is payable on the supply of services which is supplied to recipient in India. 130 P a g e

131 The establishment of a person in India and any of his other establishment outside India shall be treated as establishments of distinct persons. The effect is that though two persons may not be different, yet by this fiction they are recognized as separate person and any transaction between them, if it satisfies elements of taxability would be liable to GST. Example, transaction of supply of service between branch located in non taxable territory, say Singapore and Indian HO is treated as transaction between two distinct persons. Under GST, tax under reverse charge on services provided from outside and received in India cannot be paid out of input tax credit. Tax to be paid by e-payment on services supplied from outside India and received in India. After making payment of GST, the credit can be availed on such payment.. Import of goods/services by SEZ units: Import of services by SEZ unit or developer for purpose of authorised operations has been exempted from IGST vide Notification 18/2017-Integrated Tax (Rate) Import of goods by SEZ unit or developer for purpose of authorised operations shall be exempt from IGST vide Notification 64/2017-Customs. Conclusion: Supply of goods /services in the course of imports or exports shall be considered as interstate trade or commerce, however as far as payment of tax is concerned, in case of supply of goods in course of import may not be liable to GST. In case of service in course of import is concerned, the same could be liable to IGST, subject to Place of Provision of Service.. However, the import of goods shall continue to attract Basic Customs Duty (BCD) in addition to IGST. The manufacturer, service provider and trader of goods who imports goods/services shall be eligible to set off the IGST paid on import of goods/services against his output liability. However, the credit of BCD on import of goods will not be available in the GST law. Export of Goods and Services Background: In every taxation law, exports are exempt from the payment of taxes and duties inorder to make the export of goods or services competitive in the international market. This is based on the globally recognized concept that taxes cannot be exported. International trade also has to consider ironing out of the differences between countries. Export of Goods under 131 P a g e

132 Central Excise and Customs Law: Export of Goods means taking goods from India to place outside India both under Central Excise and Customs. Export of goods under GST Section 2(5) of IGST law: Export of goods with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India; a) Analysis: The Concept of Export of Goods under GST is similar to concept of Export of Goods under Central Excise and Customs law also. b) Export will not be liable to tax under GST law. c) There is no requirement for receipt of foreign exchange currency in case of export of goods. d) Input credit related to Export of Goods can be availed and also can go for refund either on inputs tax credits or IGST paid on export of goods (like rebate under Central Excise) to the extent credit utilized for exports, also refund can be claimed on deemed exports.. Goods: a) Section 2(52) of GST law: Goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply; b) Deemed Exports:- As per Section 2(39) the concept of deemed exports has been defined in section 147 which means Government, on the recommendations of the council, notify certain supplies of goods as deemed exports, where goods supplied does not leave India and consideration for such supply is received either in Indian Rupees or in any Convertible Foreign Exchange, if such goods are manufactured in India. Export of Service under GST: As per Section 2(6) of the IGST Act 2017, the supply of any service shall be treated as export of service whena) the supplier of service is located in India, b) the recipient of service is located outside India, 132 P a g e

133 c) the place of supply of service is outside India, d) the payment for such service has been received by the supplier of service in convertible foreign exchange, and e) the supplier of service and recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8 Explanation: For the purposes of clause (e), (i) a person has an establishment in India and any of his other establishment outside India (ii) an establishment in a state or Union territory and any other establishments outside that state; or (iii) an establishment in a state or Union territory and any other establishment being a business vertical registered within a same state or Union Territory shall be treated as establishments of distinct persons. Analysis:- a) If any one of the conditions for export of service, is not fulfilled, then the transaction shall not be treated as export of service, and such transaction would be taxable to GST, either CGST& SGST/ IGST depending upon the place of supply. b) The Supplier of Service shall avail the input credit related to Export of Service and go for refund on input tax credit or refund on IGST paid on exports of services. Concept of location of supplier and recipient of service: Section 2(15) of IGST Act location of supplier of services means: (i) where a supply is made from a place of business for which registration has been obtained, the location of such place of business ; (ii) where a supply is made from a place other than the place of business for which registration has been obtained, a fixed establishment elsewhere, the location of such fixed establishment; (iii) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and (iv) in absence of such places, the location of the usual place of residence of the supplier Example: Place of Location of 133 P a g e

134 Sl. No. Scenario Service Provider 1 Supply of Consulting Services from Bangalore location of CA firm Bangalore 2 Supply of Consulting Services made from Hyderabad location of CA firm Hyderabad 3 Where consulting services assignment obtained by Gurgaon location of multi-location CA firm, but part of consulting services provided from Vizag [where a supply is made from more than one establishment] Gurgaon[the location most directly concerned with the provision of the supply] Section 2(14) of IGST Act location of recipient of services means: (i) where a supply is received at a place of business for which registration has been obtained, the location of such place of business; (ii) where a supply is received at a place other than the place of business for which registration has been obtained,, a fixed establishment elsewhere, the location of such fixed establishment; (iii) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and (iv) in absence of such places, the location of the usual place of residence of the recipient; General Points: As per Section 2(23) of IGST Act, definition of Zero Rated Supply assigned in section 16. It has been clarified that the Export shall be treated as Zero Rated Supply and credit related to same can be availed and claim refund of the same.. Section 16 of the IGST Act 2017, contains the provisions relating to zero-rated supplies: Zero rated supply means any of the following supplies of goods or services, namely (a) export of goods or services or both or (b) supply of goods or services to a SEZ developer or an SEZ unit. 134 P a g e

135 Subject to provisions of section 17(5) of CGST Act credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. A registered person making zero rated shall be eligible to claim refund under one of the following two options, namely (a) a registered person may supply goods or services under bondor Letter of Undertaking, subject to such conditions, safeguards and procedure as prescribed in notification 37/2017 and circular 8/2017 in this regard, without payment of IGST and claim refund of unutilized input tax credit in accordance with provisions of section 54 of the CGST Act, 2017 read with rules made thereunder; (b) a registered person may supply goods or services, subject to such conditions, safeguards and procedure as may be prescribed in this regard, on payment of IGST and claim refund of IGST paid on goods or services supplied in accordance with provisions of section 54 of the CGST Act, 2017 read with rules made thereunder. Procedure for export without payment of IGST- Government has issued circular 8/2017 to address the concerns of exporters and simply the procedures in respect of exports without payment of IGST.Following are salient features in respect of letter of undertaking vide circular 8/2017- (a) Eligibility: All registered persons who intends to supply goods/services without payment of IGST has to execute LUT instead of Bond. However, persons who has been prosecuted for any offence under GST law where amount of GST exceeds 250 lakhs shall not be eligible for this benefit. (b) Procedure: Letter of undertaking needs to be furnished to jurisdictional AC/DC on letter head of the registered person in format prescribed in RFD-11. Self-declaration by the exporter to the effect that he has not been prosecuted also needs to be submitted. Letter of undertaking shall be valid for whole financial year in which it issued. (c) Bond with bank guarantee: Registered person who has been prosecuted under GST for any offence where amount of GST exceeds 250 lakhs would be required to issue bond with bank guarantee in case he wishes to export goods/services without payment of IGST. The quantum of bank guarantee would be 15% of the bond amount. 135 P a g e

136 (d) Supplies to SEZ unit/developer: Such supplies are considered as Zero rated supplies u/s 16 of IGST Act. Registered persons can supply goods/services to SEZ unit/developer without payment of IGST by issuing letter of undertaking/bond. (e) Purchases through form CT-1:The exemption given to merchant exporters under earlier laws would not be available under GST. The transaction between a manufacturer and a merchant exporter is in the nature of supply and the same would be subject to GST. The government has recently issued notification 41/2017- Integrated Tax (Rate) dated 23rd October 2017 and 40/2017 Central Tax (Rate) dated 23rd October 2017 to benefit merchant exporters. The IGST notification prescribes that supply to merchant exporter in case of interstate is 0.1% and CGST notification prescribes 0.05% CGST and 0.05% SGST. The following procedure to be followed for charging concessional rate. 1. Registered supplier supply the goods on a tax invoice. 2. Registered recipient export the goods within a period of ninety days from the date of issue of tax invoice by the registered supplier. 3. Recipient shall indicate the GSTIN and tax invoice number of the registered supplier in the shipping bill or bill of export. 4. Recipient shall registered with Export promotion Council or a commodity Board recognised by Dept of commerce. 5. Recipient shall place an order on registered supplier for procuring goods at concessional rate. a. Copy of Order shall be submitted to jurisdictional tax officer of the registered supplier. 6. Recipient shall move the goods from place of registered supplier a. Directly to the port, Inland container deport, Airport or Land customs station from where the goods are exported. b. To registered warehouse from where the said goods shall be move to the port Inland container deport, Airport or Land customs station. 7. Registered recipient after export of goods shall provide copy of shipping bill or bill of export containing details of GSTIN and tax invoice of the registered supplier. a. Along with proof of export general manifest or export report having been filed to the registered supplier as well as jurisdictional tax officer of such supplier 136 P a g e

137 If Goods are not exported within a period of ninety days from the date of issue of tax invoice the supplier shall not be eligible for deemed export benefit. Aggregate supplies 1. Registered recipient intends to aggregate supplies from multiple registered suppliers and then export, a. Goods shall move from registered supplier premised to registered warehouse b. After aggregation, the registered recipient shall move the goods to the port. 2. In the above case recipient should endorse receipt goods on the tax invoice and also obtain acknowledgment of receipt of goods in the registered warehouse from the warehouse operator. a. Endorsed tax invoice and acknowledgment shall be provided to the registered supplier and jurisdictional tax officer of such supplier. 3. Registered recipient after export of goods shall provide copy of shipping bill or bill of export containing details of GSTIN and tax invoice of the registered supplier. a. Along with proof of export general manifest or export report having been filed to the registered supplier as well as jurisdictional tax officer of such supplier If Goods are not exported within a period of ninety days from the date of issue of tax invoice the supplier shall not be eligible for deemed export benefit. Further, Government has enabled deemed export option for supplies to EOU / EHTP / STP / BTP units in terms of Notification No. 48/2017-Central Tax dated , the following procedure and safeguards are prescribed 1. The recipient EOU / EHTP / STP / BTP unit shall give prior intimation in a prescribed proforma in "Form A" (appended herewith) bearing a running serial number containing the goods to be procured, as pre-approved by the Development Commissioner and the details of the supplier before such deemed export supplies are made. The said intimation shall be given to The registered supplier; The jurisdictional GST officer in charge of such registered supplier; and 137 P a g e

138 Its jurisdictional GST officer. 2. The registered supplier thereafter will supply goods under tax invoice to the recipient EOU / EHTP / STP / BTP unit. 3. On receipt of such supplies, the EOU / EHTP / STP / BTP unit shall endorse the tax invoice and send a copy of the endorsed tax invoice to the registered supplier; the jurisdictional GST officer in charge of such registered supplier; and its jurisdictional GST officer. 4. The endorsed tax invoice will be considered as proof of deemed export supplies by the registered person to EOU / EHTP / STP / BTP unit. 5. The recipient EOU / EHTP / STP / BTP unit shall maintain records of such deemed export supplies in digital form, based upon data elements contained in "Form-B" (appended herewith). The software for maintenance of digital records shall incorporate the feature of audit trail. While the data elements contained in the Form- B are mandatory, the recipient units will be free to add or continue with any additional data fields, as per their commercial requirements. All recipient units are required to enter data accurately and immediately upon the goods being received in, utilized by or removed from the said unit. The digital records should be kept updated, accurate, complete and available at the said unit at all times for verification by the proper officer, whenever required. A digital copy of Form B containing transactions for the month, shall be provided to the jurisdictional GST officer, each month (by the 10th of month) in a CD or Pen drive, as convenient to the said unit. The above procedure and safeguards are in addition to the terms and conditions to be adhered to by a EOU / EHTP / STP / BTP unit in terms of the Foreign Trade Policy, and the duty exemption notification being availed by such unit. The Supplier can go for refund of tax charged to recipient in the Tax invoice subject to production of following conditions:- a) Re-warehousing certificate from the buyer of the goods that the goods have been received in their factory. b) Undertaking from the buyer that they have not availed the Credit on these goods. 138 P a g e

139 c) Undertaking from the buyer that they will not go for refund of GST on this tax invoice. Conclusion: GST shall not be charged on goods/services exported from India. In case the supply of goods qualifies as export out of India as per the Place of Supply Rules the transaction shall be treated as zero-rated supply. The supplier shall be allowed to export the goods/services without charging any tax and can avail the CGST/SGST and IGST credits paid on inputs and input services. If he is unable to utilize the credit then he can go for refund of credits as per section 54 of Central GST Act, 2016 In a nutshell, imports and exports are going to be covered in IGST. Exports will be zero rated and refund of ITC shall be allowed. IGST as well as Basic Custom Duty, shall be leviable on imports of goods and or services. 139 P a g e

140 15. Stock Transfer and Job Work What is stock transfer? Stock transfer has not been defined in the GST law. In the common parlance, it is transfer of goods from one place of business to other place of business of the same assessee. The place of business may be branch offices, depots or warehouses. Further, the place of businesses could be in the same state or different states. When goods are transferred to branches, depots or warehouses generally consideration is not charged. Goods are sent on invoice or some other document to comply with various state or central laws. Taxability under existing laws Excise duty is leviable on clearance of manufactured goods for stock transfer purpose. If raw material is removed as stock transfer, credit availed on procurement of such raw material needs to be reversed. There is no need to charge excise duty unless the raw material has been subjected to manufacturing process. Further, CST is also not applicable in case of interstate stock transfer subject to production of F form by recipient unit. Intra state stock transfer is not liable to VAT as there is no sale involved. Stock Transfer under GST As per section 9 of the GST Law, GST is levied on all intra-state supplies of goods. Section 7 of GST law defines supply which includes all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. However, supplies specified in Schedule I even made or agreed to be made without consideration would be treated as supply and GST would apply. Supply of goods or services between related persons, or between distinct person as specified in section 10, when made in the course or furtherance of business is specified in Schedule I of GST Law. This implies that supply of goods or services between related or distinct persons even if made without consideration would be liable to GST. A person shall be treated as distinct persons in respect of each registration obtained by him whether within one State or more than one State. Hence, supplies made to another 140 P a g e

141 registered unit of the same person are taxable in GST though there is no explicit consideration. However, if the unit is located within a state and have obtained single registration, GST will not be applicable unless separate registrations have been obtained within same state for different business verticals. In other words, if stock transfer is madebetween two distinct GSTN (GST Registration Number), only then GST would be applicable,in all other cases GST will not apply.. This can be understood with the help of below diagramatical presentation of stock transfer: GST applicable Pune Factory Delhi Godown GST applicable GST not applicable Bangalore Factory Mumbai Godown Taxability under current indirect tax regime vis a vis GST Comparative analysis of tax applicability on stock transfer under present indirect tax laws and GST is reproduced below 141 P a g e

142 S. No. Nature of activity Taxability under current indirect tax law Taxability under GST 1 Transfer of goods to place of business within state ED Applicable VAT Not Applicable Only one taxable person. GST not leviable. 2 Transfer of goods to place of business outside state ED Applicable CST Not applicable subject to production of Form F Transaction between two distinct person. GST applicable. 3 Return of goods to manufacturing plant within state ED Cenvat Credit could be taken subject to rules VAT Not Applicable Only one taxable person. GST not leviable. 4 Return of goods to manufacturing plant outside state ED Applicable CST Not applicable subject to production of Form C Transaction between two distinct person. GST applicable. 5 Transfer within state between two different verticals registered separately ED Applicable VAT Not Applicable Applicable as it would be considered as transaction between two distinct persons. Valuation in case of stock transfer GST is payable on transaction value as determined under section 15 of the GST law or rules made thereunder. In case of stock transfer, where recipient unit is eligible to avail full credit, GST can be paid on transaction value by supplier unit. 142 P a g e

143 Credits to the recipient unit It is important to note that though the tax has been levied on stock transfer but in most of the cases it would be revenue neutral as recipient unit would be entitled to claim the credit of GST charged by supplier unit. The impact would be mainly around increase in cash flow. E-Way Bill In GST law invoice will be considered as major document for every purpose like availment of input credit, for movement of goods etc. Although, invoice is available for movement of goods still government is introducing a concept wherein an electronic way bill needs to be generated and carried while movement of goods. Presently, the law relating to E-way bills has been deferred and the same shall be implemented from January 2018 with full Nationwide implementation expected from April However, various states already are having a system of way bills, therefore till the time E-way bill system is in place the present way bill as implemented by few states shall continue to be in force till then. Document to be used for stock transfer Under GST law, stock transfer is considered as deemed supply between two distinct persons. Accordingly while transferring the stock one should use invoice with value as per rule 28 of CGST Rule, 2017 along with E-way bill. E-way bill will be used in the following cases Supply Continues supply Goods sent for job work Stock transfer within state Sale on approval etc., Presently the E-way bill has not been enabled in the GST portal and GST council in its 22 nd meeting which is held on 6 th October 2017 decided that the E-way bill will be kept on hold till March Therefore, now assesses are in dilemma whether invoice is sufficient for movement of goods in case of supply and in other cases delivery challan is sufficient. Presently, some of the states have been enabled e-way bill concept state wise, some of the states were not using any e-way bill for movement of goods. In Karnataka the State 143 P a g e

144 Government has enabled e-way bill from 17 th September 2017 for all registered assessee whether the assessee is supplying goods or providing service he can obtain e-way bill for movement of goods. Further, in the State of Tamilnadu the registered assessee can move the goods based on the invoice in case of supply transaction and in other cases based on delivery challan. Inter-state movement of rigs, tools and spares, and all goods on wheels [like cranes] between distinct persons as specified in section 25(4) of the Central Goods and Services Tax Act, 2017 will not be treated as supply of goods. The same has been clarified vide Circular No. 21/21/2017-GST dated Job-Work The manufacturing industries now a days stick to their core competencies and get most jobs done on outsourced basis. The sending of raw materials/semi-finished materials for some manufacturing process or for completion as per the directions of principal manufacturer is known as job work. The industries who undertake the work of job work should be aware of the provisions under GST, so that can be compliant and not face demands of levy or excess availment of credit. Even the principal manufacturer should be aware of the provisions applicable for job work not only for the purpose of enabling them to plan their processes effectively but also to cut manufacturing costs. The job work concept available without payment of central excise duty under Notification 214/86 has been continued under GST. Meaning of Job work under GST Section 2(68)- job work means any treatment or process undertaken by a person on goods belonging to another registered taxable person. Any person who does such job work will be considered as Job Worker. In CCR it only covers processing on goods supplied to job worker. The above definition is different from existing definition in CCR as it now specifies job work on goods of registered taxable person. Place of business: 144 P a g e

145 2(85) place of business includes: (a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown, or any other place where a taxable person stores his goods, provides or receives goods and/or services or both; or (b) a place where a taxable person maintains his books of account; or (c) a place where a taxable person is engaged in business through an agent, by whatever name called. Job Work under GST Under GST, levy gets attracted on supply of goods. Therefore, normally the taxable person [who is called as principal] for job work would have to pay applicable GST at time of supply of materials dispatched for job work. The job worker would avail credit of tax paid by principal. Later the job worker would clear job worked goods on payment of GST. Principal would avail credit of GST charged by job worker and discharge GST on supply of final processed goods. Under section 143the Principal could send material without payment of taxes and discharge GST on the final goods which have resulted out of processing of job worked goods received back from the job worker, subject to following prescribed procedure in this regard. The job worker can receive the goods directly from the raw material/ component supplier. The principal would engage in further processing resulting into final product. The final product would be supplied on payment of applicable GST by the principal. Job worked goods could be sent directly from job worker premises to customer of the principal. The responsibility for accounting of materials and payment of tax on job worked goods lies with the principal. Job worker would pay GST only on the processing charges. The procedure for job work has been prescribed in Section 143and given below. Section 143 is as under: 145 P a g e

146 (1) A registered taxable person (hereinafter referred to as the principal ) may, under intimation and subject to such conditions as may be prescribed, send any inputs and/or capital goods, without payment of tax, to a job worker for job-work and from there subsequently send to another job worker and likewise and shall (a) bring back inputs, after completion of job-work or otherwise, and/or capital goods, other than moulds and dies, jigs and fixtures, or tools, within 1 year and 3 years, respectively, of their being sent out, to any of his place of business, without payment of tax; (b) supply such inputs, after completion of job-work or otherwise, and/or capital goods, other than moulds and dies, jigs and fixtures, or tools, within 1 year and 3years, respectively, of their being sent out from the place of business of a job-worker on payment of tax within India, or with or without payment of tax for export, as the case may be: The principal shall not supply the goods from the place of business of a job worker in terms of clause (b) unless the said principal declares the place of business of the job-worker as his additional place of business except in a case- where the job worker is registered under section 25; or where the principal is engaged in the supply of such goods as may be notified by the Commissioner in this behalf. (2) The responsibility for accountability of the inputs and/or capital goods shall lie with the principal. (3) Where the inputs sent for job-work are not received back by the principal after completion of job-work or otherwise in accordance with clause(a) of sub-section (1) or are not supplied from the place of business of the job worker in accordance with clause (b) of sub-section (1) within a period of 1 year of their being sent out, it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when the said inputs were sent out. (4) Where the capital goods, other than moulds and dies, jigs and fixtures, or tools, sent for job-work are not received back by the principal in accordance with clause(a) of sub-section (1) or are not supplied from the place of business of the job worker in accordance with clause (b) of sub-section (1) within a period of 3years of 146 P a g e

147 their being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job-worker on the day when the said capital goods were sent out. (5) Any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax if such job worker is registered, or by the principal, if the job worker is not registered. Job work &Credit: The supplier of materials [principal] can avail credit of input tax on inputs and capital goods sent to a job-worker for job-work. Such credit availment shall be subject to such conditions and restrictions prescribed Credit can be availed on inputs/capital goods even if directly sent to a job worker for job work. In such a case, the period of 1 year / 3 years shall be counted from the date of receipt of the inputs/capital goods by the job worker. If the inputs/capital goods are not received back within 1 year/ 3 years respectively of being sent to job worker premises, then it is deemed as supply on the day when the said inputs/capital goods were sent out. Example: A a manufacturer located in Delhi sent inputs to Z who is a job worker registered under section 25 of GST Actand located in Kolkata for job work. If A receives back inputs which are being sent out for job work within 1 year from the date on which they are being sent, then it shall not be treated as supply. If not received back within 1 year then it would be treated as inter-state supply. Conclusion: There may be need for business to reconsider strategies for relocation of their units as the tax incentives under earlier law could have warranted them setting up warehouse/depots in different states. But such incentive may not exist under GST and one may have to decide whether to continue with multiple units across different locations purely based on business needs disregarding the tax aspects. Further, there is an additional requirement of e-way bill generation while sending the goods to other state for job work, however the same has been deferred until January P a g e

148 Vide notification no. 10/2017-Integrated tax dated , issued wherein exemption is provided to tax payer making interstate taxable supply of service whose annual aggregate turnover is less than Rs. 20 lacs (Rs. 10 lacs in special category states except J & K) from obtaining registration. 148 P a g e

149 16. Refund under GST Refunds under GST Introduction: GST is major indirect tax reform in Independent India. The process of refund under GST is simplified to a large extent, to ensure the assessee does not have to run pillar to post to get his refund. Under GST the word Refund includes refund of tax on goods or services exported out of India or on inputs or input services used in the goods or services which are exported out of India, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilized input tax credit as provided under section 54(3) Refunds under the earlier tax regime: Similar to any other tax statutes even under indirect tax law there is refund mechanism. It should be note that there are certain provisions under Central Excise which were made applicable for Service tax also. One of such provision is Section 11B of the Central Excise dealing applicability of time limit for filing the refund claims,. Except for the cases where the self-adjustment of tax is allowed, if any amount paid in excess by the assessee to the department, assessee needs to opt for making an application for refund in a prescribed form,and such application shall be filed before the expiry of limitation period of 1 year from the relevant date. in the erstwhile law. The application of refund shall be accompanied by a documentary evidence that the tax paid has actually been borne by the service provider himself and has not been passed on to any other persons (Doctrine of unjust enrichment). The below mentioned provisions of Central Excise were made applicable to service tax in case of refund and same is prescribed under Section 83 of the Finance Act. 1. Section 11B Claim for refund of excise duty 2. Section 11BB Interest on delayed refund beyond 3 months Under GST Regime The refund can be claimed for Export of goods/ services including deemed exports. Credit accumulation due to inverted duty structure Excess paid of tax due to mistake Finalization of provisional assessment Refund of pre-deposit, in case assessee succeeds in an appeal. Payment of excess tax during investigation. 149 P a g e

150 Refund on purchase made by Embassies and UN nation. Year-end volume based incentives provided by supplier through credit notes. Tax paid on a supply which are not provided, either wholly or partially, and for which invoice has not been issued Tax paid on an intra-state supply which is subsequently held to be inter- State supply and vice versa: Any other (specify): Time limit for filing Refund Application: The refund application should be filed to the proper officer within two years from the relevant date as prescribed in the Goods and Service Tax Refund Rules.. Relevant Date: The relevant dates for filing refund application are as follows:- a. If tax paid on goods exported itself or tax paid on input or input services then, exported by sea or air->date when the ship or the aircraft leaves India; exported by land ->date when such goods pass the frontier; exported by post ->date of dispatch of goods by concerned Post Office to a place outside India. b. If Refund of tax paid on services exported itself or tax paid on inputs/input service then, If supply of service is completed prior to the receipt of payment >date of receipt of payment in convertible foreign exchange. If payment for the service received in advance prior to the date of issue of invoice > date of issue invoice. c. If supply of goods is considered as deemed export ->the date on which the return relating to such deemed exports is filed. d. If goods returned for being remade, refined, reconditioned, or subjected to any other similar process in any place of business-> the date of entry for the purposes aforesaid at a place of business. e. If the refund is as a consequence of judgment, decree, order or direction of Appellate authority, Appellate Tribunal or any Court -> date of communication of such judgement/decree/order/direction 150 P a g e

151 f. If the tax paid is provisionally -> the date of adjustment of tax after the final assessment. g. If refund is arising out of year-end volume based incentives provided by supplier through credit notes, then the relevant date shall be end of financial year in which such year end volume based incentive was made.. h. In any other case, the date of payment of tax. Refund of unutilized credit shall not be allowed in cases other thana. Exports including zero-rated supplies b. Cases where the credit has accumulated on account rate of tax on inputs being higher than the rate of tax on output supplies No refund of unutilized input tax credit shall be allowed, in case of export of goods are subjected to export duty. Considering the intention of the law no refund should be allowed to the exporter who is subjected to export duty. However going by the verbatim reading of the law, exporter of goods who is subjected to export duty can claim refund on IGST paid on exports, being in addition to export duty. Can Exporter claim refund on credit of capital goods: In terms of explanation (1) to Section 54(14) of CGST Act, 2017 refund of unutilized GST Credit for the exporters will be given only on inputs and input services. Credit on Capital Goods will not be given as refund. This credit can be utilized for the payment of IGST on exports and can claim the refund of IGST paid on exports. Provisional Refund exporters: Exporters of goods/ services will be entitled for provisional refund of 90% within 15 days of filing the complete refund application. The period of 15 days shall be counted only after filing the claim with all documents, in case there are any missing documents, the period of 15 days shall start only after furnishing all such missing documents. Thereafter after due verification the balance refund will be sanctioned or demanded back in case there was any discrepancy noted by the department. Conditions to file the refund claim: Assesee filing the refund claim should not have defaulted in filing any GST return. 151 P a g e

152 Assesee who has not paid the tax, interest, penalty due by him, and where the demand order is not stayed by any court, tribunal or appellate authority, the claim of refund shall be adjusted towards such Government dues. Documents substantiating no unjust enrichment: Exporters of goods/ services claiming refund are not required to furnish any Certificate from Chartered Accountant or cost accountant. However assesses claiming refund other than exporters are required to furnish the following documents. a. Certificate from Chartered Accountant or cost accountant based on examination of books of accounts. If the refund claim amount is more than or equal to Rs 2 Lakhs, certifying the incidence of tax and interest was only borne by such assesee and was not passed on to any other assesee.. b. If the refund claim amount was less than Rs 2 Lakhs, self-declaration certificate. c. Invoice Copy - Tax not charged in invoice d. Customer ledger account. e. Agreement copy. f. Declaration from Customer. Interest on refund: Where any claim for refund is not processed within 60 days of filing the complete refund application, interest at the rate of 6% PA on the refund claim shall be paid after the expiry of 60 th day till the date of sanction of refund claim amount. In case of refund arising out of order of adjudicating authority, appellate authority, tribunal or any court, upon attaining finality of such order, refund arising out of such order shall be paid within 60 of making the application of refund consequent to such order, in case there is a delay in sanctioning of refund, interest at the rate of 9% PA shall be paid after the period of 60 days of making the application consequent to such order. However there is no whisper about the interest from the date of payment of such tax till the date of final order, to make it on par with demand cases, wherein interest is collected by the department from the due date will the date of actual payment, considering the long wait of period of litigation and blocking of working capital. 152 P a g e

153 Fast track system to process the refund of IGST paid on export of goods for the month of July 2017 has been initiated from In case of export of goods on payment of IGST outside India, shipping bill filed by the exporter shall deemed the refund application. The exporter of goods for the month of July 2017 should have filed the shipping bill with IGST and corresponding GSTR-1 for the month of July 2017 should also have been filed. Pre-requites for claiming refund of IGST paid on Export of Goods for the month of July Filing of Export General Manifest- Exporter of Goods to claim refund of IGST paid on export of goods should have filed the shipping bill, including export invoice by charging IGST. Secondly the concerned airlines/ shipping line/ carriers should have filed the EGM report at the gateway port of ICD. 2. Exporters who have exports made through CHAs shall follow -up with the concerned airlines/ shipping line/ carriers to have filed the EGM for processing of IGST refund. 3. Exporter of goods on payment of IGST should have filed the GSTR-1 for the month of July 2017, to ensure that the details of zero rated supplies declared in column 6A of the said GSTR-1 match with the shipping bill details. (In case of any mistakes or typing errors in shipping bills may be not rectifiable, on the other hand in mistakes in GSTR-1 could be rectified at the time of filing of monthly return, but an opportunity to encash the fast track refund may be missed out). 4. As return for the month of July 2017 is still not been made available by GSTN, every exporter of goods on payment of IGST should ensure that the GSTR-3B for the month of July 2017 is filed. As filing of GSTR-3B is mandated to file the refund of IGST paid on export of goods. 5. In case exporter of goods who has not filed GST 3B, may have to wait until he files the monthly return and thereafter file refund claim. 6. Refund shall be processed at the bank account details available with the customs, there could be scenarios wherein the bank account details made available at the time of GST registration is different from the bank account details available with customs, 153 P a g e

154 exporters are required to align both these account details ensuring a common bank account details are made available with customs department and GSTN. 7. As refund payments are being processed through PFMS portal, (Public Finance Management System), exporter are required to validate their bank account with PFMS, and the status of validation will be available at ICES. The Government vide Circular No. 18/18/2017-GST dated clarified that even though there is restriction of the refund of unutilized Credit in case of fabrics under Section 54(3), the same will not be applicable in the case of refund of unutilized Credit of export of fabrics. Conclusion Exporters earn valuable foreign exchange for our country. Therefore, it is necessary to take care of exporters. This time government has tried to simplify the refund related procedures by encouraging the online filing of refund claim under GST regime. Also, doing away cumbersome procedures related to export and brining new schemes for export promotion is a step forward to take the country from the group of developing nations to a developed one. 154 P a g e

155 17. Transitional Provisions and other provisions Introduction: This chapter provides the basic understanding of various procedures/issues for switchover from existing tax structure to GST structure. Section 139 to 142 of CGST / SGST (chapter XX) covers the important provisions of transitional aspects. Few of them are discussed below: Transitional arrangements for input tax credit (Section 140): (1) A registered taxable person other than a person opting to pay tax under section 10 (composition scheme) would be entitled to take credit of CENVAT /Value Added Tax as carried forward in the return furnished under the earlier laws. Credit furnished under earlier law If, admissible under the GST law Credit available A registered person would not be allowed to take credit in the following circumstances, - Where the said amount of credit is not admissible as input tax credit under GST Act. Where all the returns required under the existing law such as VAT / CST / ET / CE / ST for the period of six months immediately preceding the appointed date are not furnished. Where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by Central Government. It may be noted that the credit as is attributable to Form C sales, Form F stock transfers, Form H sales would be allowed to be carried forward only if such forms have been filed within the stipulated time as per CST law. For balance forms pending, the credit would not be allowed. The details to be shown in TRAN-1 form to be filed before 31 st October (2)Un-availed CENVAT credit on capital goods not carried forward in earlier return 155 P a g e

156 A registered person is entitled to take credit of unavailed CENVAT credit on capital goods, not carried forward in return filed under the earlier law.. Above is subject to admissibility of the credit in the earlier law & admissible as input tax credit under GST law. (3) A registered person:- Who was not liable to registration under earlier law, or Engaged in manufacture of exempted goods,/ providing exempted services/ Works contract service and availing 26/12 benefit/ 1 st stage dealer/ 2 nd stage dealer, but liable to registration under GST law shall be entitled to take credit of eligible duties and taxes in respect of inputs held in stock. The above is subject to: Such inputs Are used for making taxable supplies Taxable person Eligible for input tax credit under CGST Act Taxable person Is in possession of invoice & other Docs as under earlier law Such invoice Are issued not earlier than 12 months preceding the appinted day Supplier of service not eligible for any abatement under GST A registered person other than a manufacturer or a supplier of services who is not in possession of an invoice or any other documents evidencing payment of duty would be eligible for prescribed percentage of credit. Such additional credit benefit to be passed to customers by way of reduced prices. 60% of the Central Tax paid (in case rate of CGST is 9% or 14%) and 40% of the Central tax paid (in case rate of total tax is 2.5% or 6%) is allowed in case of goods wherein duty paid invoices are not available. In case of inter-state supplies, 30% or 20% of integrated tax paid will be allowed respectively. Excise Duty Credit earned through Credit Transfer Document shall be disclosed in the tables given under Section 140(3) along with filing of Form Trans P a g e

157 (4) A registered person, who was engaged in the manufacture of non-exempted as well as exempted goods under the Central Excise Act, 1944 or engaged in provisions of nonexempted as well as exempted services under Chapter V of thefinance Act, 1994, shall be entitled to take, in his electronic credit ledger- the amount of Cenvat credit carried forward in a return furnished under the existing law by him in terms of sub - section 1 the amount of Cenvat credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, relating to exempted goods or services, in terms of sub-section 3. (5) Credit of eligible duties & taxes in respect of inputs & input servicesduring transit A registered personwould be allowed to take credit:- In respect of inputs & input services received on or after the appointed date, if: Duty or tax paid before appointed date, and Invoice/ duty paying document is recorded in books of account within 30 days This can be extended by another 30 days by the government. However, no such extension has been made as of now. Proper disclosure of such invoices to be made in TRAN-1. (6) Registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely: such inputs or goods are used or intended to be used for making taxable supplies under CGST Act; the said person is not paying tax under section 10 (i.e. Composition scheme); the said registered person is eligible for input tax credit on such inputs under this Act; the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs; such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day. 157 P a g e

158 (7) Input Service Distributor shall distribute the credit on services received prior to appointed day even if invoices received after appointed day. Such credits would be distributed as credit under GST. (8) Registered person in GST having centralized registration under existing law can avail credit of the amount carried forward in a return as Cenvat credit subject to condition that: Service tax return to be filed within 3 months from the date of appointed day; Revised return should not enhance the credit amount; The said credit amount should be admissible under GST law The said credit can be transferred to any registered person having the same PAN for which centralized registration was obtained. (9)Where any credit availed for the input services provided under the existinglaw has been reversed due to non-payment of the consideration within a period of threemonths, such credit can be reclaimed subject to the condition that the registered person has made the payment of the consideration for that supply of services within a period of threemonths from the appointed day Transitional provisions relating to Job work (Section 141): (1) Any material sent on job work / testing, repair, reconditioning or any other purpose to the job worker, such material can be obtained without payment of duty within a period of 6 months from the appointed day or the period which is extended max upto 2 months. If such goods are not returned in the above time, then input credit will have to be recovered in terms of provisions of the law. (to be paid in cash but no credit can be taken of that amount). It is interesting to note that no provisions provide for treatment of capital goods sent for job work. In the absence of any provision, it would be ideal to receive back even the capital goods at the earliest and send it back for job work under GST provisions. (2) Any material sent on job work / testing, repair, reconditioning or any other purpose to the job worker, such material can be obtained without payment of duty within period of 6 months from the appointed day or the period which is extended max upto 2 months. If such goods are not returned in the above time, then input credit will have to be recovered in terms of provisions of the law. (to be paid in cash but no credit can be 158 P a g e

159 taken of that amount). Similar conditions are provided for finished goods as well which may have been sent for any purpose not amounting to manufacture. Returned after 6 Duty paid goods under earlier law returned to place of business Returned within 6 No refund Taxable person shall be eligible for refund of the duty paid under the earlier law Goods are returned by person other than registered person (3) The benefit of non-payment of any tax as discussed above is available only if job worker and the person who sent the goods on job work declare the stock in the TRAN-1 form. It should be ensured by both that there are no differences in stocks declared. Miscellaneous transitional provisions (Section 142): (1) Thegoods which have been supplied to unregistered person and tax has been paid under the earlier laws can be returned within 6 months from 1 st July without payment of GST by such unregistered person. The recipient of goods would be eligible to claim refund of tax paid in respect of such goods also subject to conditions that goods had been sold on after 1 st Jan If goods are returned by the registered person it will be treated as fresh supply and GST will be payable by the person returning the goods. (2)(a) In case of upward revision of the prices under the previous contract, debit note / supplementary invoice can be raised within period of 30 days of such revision and payment of GST will be applicable thereon. (b) However, in case of downward revision, such taxable person will raise the credit note in the prescribed manner within 30 days of the revision and reduce the tax liability of GST subject to reducing the input tax credit to that extent. 159 P a g e

160 (3) Any refund of claim filed under the earlier law will be dealt with under the provisions of existing law and refund will be granted in cash. However, if partial refund is granted the balance refund will be lapsed. However, no such refund will be allowed of any Cenvat Credit where the balance of the said amount has been carried forward to GST. (4) Any claim of refund filed after appointed day for refund of any tax paid under existing law in respect of goods or services exportedbefore or after the appointed date will be dealt with provisions of earlier law and refund of CENVAT credit will be granted in cash. However, if partial refund of CENVAT credit is granted the balance refund will be lapsed. However, no such refund will be allowed if input tax credit has been carried forward to GST of the amount of such refund claim. (5) Every claim filed by a person after the appointed day for refund of tax deposited under the existing law in respect of services not provided shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, (6)(a) Any favorable order in appeal, revision, review or reference w.r.t. input tax credit will be disposed of under the earlier law and it will be given in cash and if it is rejected, no such input tax credit will be allowed. Moreover, refund will not be granted in cash, if such amount is carried forward in electronic credit ledger. Any duty paid under earlier law as decided in the appeal proceedings, such amount will be recovered as arrears of tax and no credit is admissible under the GST regime, even if amount is recovered. (b) Any favorable order in appeal, revision, review or reference w.r.t. input tax credit will be disposed of under the earlier law and it will be given in cash and if it is rejected, no such input tax credit will be allowed. Moreover, refund will not be granted in cash, if such amount is carried forward in electronic credit ledger (7)(a) Any favorable order in appeal, revision, review or reference w.r.t. output tax will be disposed of under the earlier law and it will be given in cash and if it is rejected, no such output tax will be allowed. Moreover, refund will not be granted in cash, if such amount is carried forward in electronic credit ledger. 160 P a g e

161 (b) Any duty paid under earlier law as decided in the appeal proceedings, such amount will be recovered as arrears of tax and no credit is admissible under the GST regime, even if amount is recovered. (8)(a) Where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person the same shall be recovered as an arrear of tax under this Act (unless recovered under the existing law) and the amount so recovered shall not be admissible as input tax credit under this Act. (b) Where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes refundable to the taxable person, the same shall be refunded to him in cash under the said law, notwithstanding anything to be refundable or CENVAT credit is found to be admissible to any taxable person, the same shall be refunded to him in cash under the existing law, notwithstanding anything to the contrary contained in the said law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 and the amount rejected, if any, shall not be admissible as input tax credit under this Act. (9) (a) where any return, furnished under the existing law, is revised after the appointed day and if, pursuant to such revision, any amount is found to be recoverable or any amount of CENVAT credit is found to be inadmissible, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act; (b) where any return, furnished under the existing law, is revised after the appointed day but within the time limit specified for such revision under the existing law and if, pursuant to such revision, any amount is found to be refundable or CENVAT credit is found to be admissible to any taxable person, the same shall be refunded to him in cash under the existing law, notwithstanding anything to the contrary contained in the said law other than theprovisions of sub-section (2) of section 11B of the Central Excise Act, 1944 and the amount rejected, if any, shall not be admissible as input tax credit under this Act. (10) Under the old contract, if goods or services / both supplied after appointed date, it will be with be liable to tax in terms of provisions of GST law. 161 P a g e

162 (11)(a) No tax shall be payable under GST, to the extent tax was leviable on the said goods under VAT law; (b)no tax shall be payable under GST, to the extent tax was leviable on the said services under Service Tax; (c) In case of contracts (especially works contracts) where VAT / ST tax was paid on any supply both under VAT law / ST law, GST would be leviable and the taxable person would be entitled to take credit of VAT or ST under GST law tothe extent of supplies made in GST regime. The details should be disclosed in TRAN-1 form appropriately. (12) Goods sent on approval basis returned on or after the appointed day Returned after 6 months* Goods on approval basis, not later than 6 months is rejected Returned within 6 months* Tax payable by person returning such goods No, tax on goods returned * can be extended to 2 months (13) In case TDS is paid under earlier law on goods or services or both in such case, no TDS would be applicable under the GST, even if such supplies have been made thereafter on such amount on which tax has been paid under the existing law. The transitional provisions are made part of GST Act, to ensure smooth and logical transition of taxpayers who are transforming from the existing tax regime to GST regime. The major objective of transitional provisions to protect taxpayers from any loss of input credits during the transformation.the provisions provide availment of credits under different business situations. The correct understanding of transition provisions is very important from the planning and implementation point of view of GST. The registered persons need to ensure that the TRAN-1 form is filed appropriately. The due date has been extended to 27 th December 2017 as against earlier due date of 30 th November There is also a proposal to take-up review of registered persons claiming Rs.1 crore or more as transitional credit. Any wrong claim would result in demand of amounts including penalty and interest. The option of revising the TRAN-1 form is also enabled. 162 P a g e

163 18. Other GST Issues Impact of GST on remuneration to employees 1. GST is applicable on every supply unless it is specifically exempt. Therefore, it is important to understand coverage of supply, as the definition of supply is inclusive one. In the case of employee and employer, the question whether gifts given by the employer which are not in terms of employment are liable to GST. There is clarity as far as gifts to employees is concerned since the Schedule I to the CGST Act specifically provides that gifts up to Rs.50,000/- in value per annum would not be treated as either supply of goods or of services meaning thereby that gifts per se are liable to GST and hence a deeming fiction has been provided that gifts of value of Rs.50,000 in a financial year are neither supply of goods nor services. The issue arises because certain transactions between employer and employee may attract GST. As per Schedule III to the CGST Act, 2017 the services by the employee to the employer in the course of or in relation to employment is neither a supply of goods nor a supply of service. Hence, the employee service to the employer is outside the purview of GST but vice versa is not true. 2. The next question is whether remuneration or compensation paid by employer to employee in cash or otherwise is liable for GST? Generally the remuneration or compensation to employee will be in cash, kind (goods) or facilities (service). Giving cash is neither supply of goods nor supply of service since definition of both goods and service under GST Act excludes money. Therefore, remuneration paid in cash is outside the purview of GST. 3. What if compensation to employee is given in kind (goods) or facilities (service)? It can be argued and we can be reasonably certain that the department would take the view that definition of supply includes all the supply of goods and/or services and therefore whatever the employer gives in kind (goods) or by way of facilities (services) to employees in the course of business in return of their service would attract GST unless it is specifically exempt. The remuneration paid by the employer as per the terms of employment to the employee is against the services rendered by such employee. When the employer supplies goods or service beyond the terms of employment then service provided by employee cannot be the consideration against the remuneration paid by the employer and thus the supply would be without the consideration. 163 P a g e

164 4. The supply of goods and/or services made by the employer to employee without any consideration would get covered under entry no 2 of Schedule I. The employer and employee are related persons in terms of explanation to Section 15. As long as supply is made in the course of business, to a related person, without a consideration, the same shall attract GST. However, there is some relief given in the same entry that, value of gift not exceeding Rs. 50,000/- per employee per annum is exempt. Gift means giving something without any obligation or without expecting anything back. When employer gives something in the form of goods or services voluntarily (outside the terms of employment) if the value is not exceeding Rs. 50,000/- per employee per annum, the same shall be treated as neither supply of goods nor services. One more aspect to be seen here is whether gift given in cash is also covered under this provision? It has been already said in the earlier para, that payment in money is excluded from supply. Hence GST is not applicable in case gift is given in cash. 5. In other words, with regard to remuneration to employees, in cases where there is supply of goods and/or services, the supplier of goods and/or service is the employer and the recipient of goods and/or service is the employee, GST is payable. 6. From the above discussion, we may summarize as under; a. GST is not applicable on salary or remuneration paid in cash. b. GST is not applicable on gifts made in cash by employer to employee. c. GST is applicable on remuneration paid in goods and/or services as per the terms of employment. d. GST is applicable on remuneration paid in goods and/or services outside the terms of employment, if value exceeds Rs. 50,000/- per employee per annum. 7. As of now there is no clarity. In the absence of clear cut clarification from the Government about GST on the above transactions and the view taken above are conservative views regarding liability to GST and since views are in favour of revenue, the chances are that these views will hold good. 164 P a g e

165 IMPORTANT PROCEDURES 165 P a g e

166 19. Registration The procedure for registration under GST are dealt under the provisions of section 25 of the CGST Act, As per the said section every person liable to be registered under section 22 or 24 shall apply for registration in every state in which he is liable, within 30 days from the date he becomes liable to get registered. In case of casual and non-resident taxable person, the registration is required to be applied at least 5 days prior to commencement of business. To applying for registration, the assessee should have a valid PAN, mobile number and e- mail id. a. The Application shall be submitted in the following manner: i. Valid PAN, mobile number and id are required to be declared in Part A of FORM GST REG-01 on the common portal. The said details would get validated as follows: a. The PAN will get validated with the database maintained by the CBDT; b. Mobile number and id would get validated by way of OTP s. ii. On successful verification, a temporary reference number shall be generated and communicated to the assessee by way of a message to mobile number and also to the provided in Part A of Form GST REG-01. iii. The assessee is required to fill Part B of the Form GST REG-01 by using the reference number provided by the common portal and submit the same electronically. iv. On receipt of the application, an acknowledgement would be provided electronically in Form GST REG-02. v. Person applying for registration as a casual dealer or non-resident taxable person, the temporary reference number would be provided for making payment of advance deposit of estimated tax. b. The application submitted in GST Form REG-01 would be verified by the proper officer and if the application is found to be in order, registration would be approved and granted within 3 working days from the date of submission of application in Form GST REG-06. c. In case any discrepancies are noted in the application, the proper officer is required to be issue Form GST REG-03 within 3 working days, calling for such further information or documents as may be required. 166 P a g e

167 d. On receipt of such notice, the assessee is required to provide the clarification, information or document within 7 working days in Form GST REG-04. e. Once the additional information is provided, the proper officer is required to validate the same and if satisfied is required to grant the registration certification within 7 working days. f. If the assessee fails to provide the required documents within 7 working days or the proper officer is not satisfied with the details provided by the assessee, the proper officer can reject the application by recording the reason in writing in Form GST REG- 05. g. In case proper officer does not seek any additional information and has also not granted the certification of registration within 3/7 working days, then the registration application is deemed to be approved. h. The effective date of registration would be as follows: a. Where application is made within 30 days from the date he becomes liable to register - Date when the person becomes liable to registration -. b. Where application is not submitted within 30 days from becoming liable to register - Date of grant of registration. Other aspects of registration: 1. A person having a unit(s) located in a special economic zone or he being a special economic zone developer, shall obtain separate registration by treating the SEZ unit or SEZ developer vertical as a separate business vertical distinct. 2. If any person wants to obtain registration as an ISD (Input Service Distributor), he shall file a separate application to get himself registered as an ISD. 3. In case an assessee has multiple business verticals within a state, he has an option to obtain separate registration for each such business verticals. However, if the assessee opts to pay the tax under composition scheme, then each vertical should be under the same scheme or visa versa. 4. If the proper officer during the investigation, audit etc., finds that assessee has failed to register under GST, then he can issue such order for obtaining registration under GST. In such a case, the assessee has the option to obtain registration as per the above procedure or challenge the order passed by the proper officer. 167 P a g e

168 5. The assessee after obtaining registration is required to display the registration certificate at his principal place of business and at every additional place of business. 6. Further the GSTIN number is also required to be displayed on the name board exhibited at the entry of principal and every additional place of business. 7. In case of any amendment in the registration certificate, the taxable person is required to furnish the same in Form GST REG The taxable person can apply for cancellation of registration on closure of business or any other situation as prescribed or the proper officer on his own can issue cancellation order in following situations. a. does not conduct any business from the declared place of business; or b. issues invoice or bill without supply of goods or services in violation of the provisions of this Act, or the rules made thereunder; or c. violates the provisions of section 171 of the Act or the rules made thereunder. 9. If the proper officer issues a cancellation order, the taxable person has the option to apply for revocation of such order within 30 days. The registration procedure would be the same for all assessee as explained above, however the forms prescribed for each case would be different. Summary of such forms has been provided in the below table: S. Particulars Form Remarks No. prescribed 1. Application for registration GST Reg-01 Applicable for persons other than nonresident taxable person, special entities to whom UIN is issued and persons liable to deduct / collect tax u/s 51& Acknowledgment of GST Reg-02 submission of application for registration 3. Any clarification /information required by proper officer GST Reg-03 Within 3 working days of submission of application either: 4. Furnishing by assessee of GST Reg-04 Provide within 7 common working days 168 P a g e

169 the information, clarification or document sought for above. 5. Reject if proper officer not satisfied with information, clarification or document 6. Approve grant of registration GST Reg-05 GST Reg-06 from date of receipt of GST Reg-03. Within 7 common working days of receipt of information, clarification or document in GST Reg-04 Within a. 3 common working days of submission of application where no further information, clarification or document is required, or 7. Application for registration by person who is required to deduct / collect tax at source u/s 51 & 52 respectively 8. Grant of registration to nonresident taxable person 9. Application for registration of person supplying online information and data base access or retrieval services from a place outside India to a person in India, other than a registered person 10. Application for extension of registration period by casual / non-resident GST Reg-07 GST Reg-09 GST Reg-10 GST Reg-11 b. 7 common working days of receipt of information, clarification or document Grant of registration in Form Reg-06 mentioned above in S. No. 6 within 3 common working days. As per 22 nd Council meeting the provisions of section 51 & 52 is postponed till At least 5 days prior to the the commencement Shall be acknowledged only on payment of amount specified 169 P a g e

170 taxable person 11. Issue of order of Grant of GST Reg-12 Temporary Registration/ Suo Moto Registration 12. Application/Form for grant GST Reg-13 of Unique Identity Number (UIN) to UN Bodies/ Embassies /others AMENDMENT OF REGISTRATION CERTIFICATE 13. Application for GST Reg-14 Amendment of particulars in Registration Certificate (For all types of registered persons) 14. Order of Amendment GST Reg-15 CANCELLATION OF REGISTRATION 15. Application for Cancellation GST Reg-16 of Registration 16. Proper officer on his own GST Reg-17 for cancellation issue a Show Cause Notice for Cancellation of Registration 17. Show Cause Notice for Cancellation of Registration GST Reg Reply to Show Cause GST Reg-18 Notice issued for within 90days from the date of the grant of such registration file an application for registration Assign UIN in Form Reg-06 mentioned above in S. No. 6 within 3 common working days. Within 15 days of such change apply for amendment of legal name of business, PAN, address of principal / additional place of business, addition, deletion, retirement of partners etc., To also give details of closing stock and liability thereon. Person who has applied for registration voluntarily cannot apply before completion of 1 year To be passed within 30 days from application date/date of reply of notice to show cause. To be filed within 7 working days from the date of such notice To be filed within 7 working days from the date of such notice To be submitted within the prescribed time. 170 P a g e

171 Cancellation of Registration 19. Order for Cancellation of Registration GST Reg Order for dropping the GST Reg-20 proceedings for cancellation of Registration REVOCATION OF CANCELLATION 21. Application for Revocation GST Reg-21 of Cancellation of Registration 22. Order for revocation of GST Reg-22 cancellation of Registration. 23. Show Cause Notice for GST Reg-23 rejection of application for revocation of cancellation of registration 24. Reply to the notice for GST Reg-24 rejection of application for revocation of cancellation of registration Within 30 days of receipt of application To be applied within 30 days from the date of service of the order of cancellation of registration. To be passed within 30 days of receipt of application for revocation. Applicant to follow procedure stated for GST Reg-03 & GST Reg-04 Reply within 7 working days Other important points: 1. The option to opt for composition scheme was earlier provided up to , and has now been extended upto (under Notification 45/2017 Central Tax dt ) 2. As per order no. 5/2017 GST dated the intimation under CMP-03 w.r.t stock held before opting to composition scheme is extended up to Further, vide notification no. 7/2017-IGST dated exempts a job worker engaged in making inter-state supply of services to a registered person from obtaining registration under GST Act. 4. Provided the above exemption is not applicable to a job worker 171 P a g e

172 (a) who is liable to be registered under sub-section (1) of section 22 or who opts to take registration voluntarily under sub-section (3) of section 25 of the said Act; or (b) who is involved in making supply of services in relation to the goods mentioned against serial number 151 in the Annexure to rule 138 of the Central Goods and Services Tax Rules, As per 22 nd council meeting the following benefits/relaxations are provided: a. The registration and operationalisation of TDS/TCS (section 51/52) have been postponed till b. The services provided by a GTA to an unregistered person shall be exempted from GST. In this situation the GTA s may require to take decision whether registration under GST is required or not - 32/2017- Central Tax (Rate) dated c. The service providers whose aggregate turnover is less than Rs. 20 lacs (Rs.10 lacs in special category states except J & K), exemption from registration is provided even though the service providers have inter-state supplies of services Vide notification no. 10/2017-Integrated Tax dated P a g e

173 20. Migration Migration of existing registration As per section 139 of GST Law, as on the appointed day, every person registered under the earlier laws with valid PAN should get provisional registration. For this purpose, the earlier laws would include the laws governing the taxes Central Excise, Service Tax, State Sales Tax or VAT (except exclusive liquor dealers if registered under VAT), Entry Tax, Luxury Tax, Entertainment Tax (except levied by the local bodies). Further as per section 22(1) of the CGST Act, 2017 an assessee who has registered under the earlier law are liable to get registered under GST with effect from appointed day. In other words, a person who had obtained registration under earlier law are compulsorily required to obtain registration under GST Act. Thus every such person would be issued a provisional registration number and the process of converting it into final registration is given in the table below: MIGRATION TO GST 1. Certificate of Provisional GST Reg-25 Registration 2. Application for Enrolment of Existing Taxpayer GST Reg Certification of registration GST Reg Show Cause Notice for GST Reg-27 cancellation of provisional registration 5. Order of cancellation of GST Reg-28 provisional registration 6. Vacation of cancellation by GST Reg-20 issuing an order 7. Application for cancellation GST Reg-29 of provisional registration Duly signed or verified through EVC Information shall be furnished within 3 months Cancel the provisional registration issued under GST Reg-25 Who registered under existing law and not liable to be registered under GST has to apply within 30 days. 173 P a g e

174 8. Form for Field Visit Report GST Reg-30 Upload in portal within 15 working days following the date of such verification Further where a person opts to pay tax under the composition scheme as per section 10 of GST law, he may opt to do so within such time and in such manner as may be prescribed. Thus it can be seen that for existing tax payers under the earlier laws there is no requirement to make fresh application for registration under GST and the same would be provided to them provisionally first which will become final on verification of the documents and details provided by them during enrolment at gst.gov.in or after the grant of the provisional registration. 174 P a g e

175 21. Tax Invoice and other documents for movement Introduction Documents are essential for movement of goods and also for determining the time of supply of goods or services or both. Hence it is important to understand the documents which are to be carried while goods are in transit. This chapter contains the discussions on the documents which are essential for movement of goods or provision of services or both. The issuance of tax invoice for supply of goods or services or both is mandatory and the tax invoice is required to be carried while goods are in movement along with E-way bill (to the extent made applicable). The tax invoice is mandatory not only for movement of goods, even for the purpose of availment of input tax credit. Further the provisions of E-way bill have been postponed to and it would be introduced nationwide w.e.f , and till such time the state law procedures would be followed in lieu of E-way bill. How to raise a proper Invoice? The Assessee is required to raise the tax invoice as per the provisions of section 31 of the CGST Act, 2017 and such tax invoice shall contain the following contents: i. Name, Address and GSTIN No of supplier of goods or service; ii. Consecutive serial No not exceeding 16 characters, the invoice number may contain alphabets or numerals or special characters i.e., dash or slash; iii. Date of its issue; iv. Details of person to whom the invoice is billed (receiver); v. Details of person to whom the goods are shipped (consignor); vi. If recipient is unregistered and value of the taxable supply is fifty thousand or more, address of the recipient and address of delivery is compulsory; vii. HSN code of Goods / Service; viii. Description of goods or services; ix. Quantity/Unit in case of Goods; x. Total value of supply of goods or services or both taking into account discount or abatement; xi. Taxable value xii. Rate of tax xiii. Tax amount 175 P a g e

176 xiv. xv. xvi. Place of supply in case of inter-state trade or commerce; Whether the tax is payable on reverse charge basis; and Signature or digital signature of the supplier of his authorised representative; Note 1: There may be initial period of relaxation from HSN for any class of registered persons as may be specified by way of notification. As of now, if the aggregate turnover is less than 1.5 crores HSN is not required to be provided in the tax invoice. Note 2: Revised invoice or debit note or credit note, shall contain the same details of tax invoice. However the word revised invoice shall be indicated and the reference of original invoice on which behalf the present revised invoice, credit note or debit note raised is required to be mentioned. Note 3: if any goods are transported in semi or completely knocked down condition, the original invoice should be sent along with last consignment. Note 4: Vide Notification n. 45/2017-Central tax dated provided the benefit to raise invoice-cum-bill of supply in case of supply of taxable and exempted goods to single recipient. The format of the invoice may be as follows: 176 P a g e

177 177 P a g e

178 In case of exports and supply to SEZ: The invoice shall contain the declaration SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS ON PAYMENT OF INTEGRATED TAX or SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX as the case may be and shall contain the following details i. Name and address of the recipient; ii. Address of delivery; and iii. Name of the country of destination; Time limit for issue of invoice: In case of supply of taxable services, the invoice shall be issued within 30 days from the date of supply of service. In case of banking or financial institutions the invoice shall be issued within 45 days. In case of inter-branch billing between distinct persons of an insurer or a banking company or a financial institution including a non-banking financial company, or a telecom operator, or any other class of supplier of services as may be notified, may issue invoice before or at the time when the supplier records the same in the books of account or before the expiry of the quarter during which the supply was made. 178 P a g e

179 Manner of issuing invoice: Supply of goods ( 3 copies) Supply of service ( 2 copies) Original for recipient Original for recipient Duplicate for transporter Duplicate for supplier Triplicate for supplier Bill of Supply: A registered taxable person supplying exempted goods or services or both or paying tax under composition scheme shall issue bill of supply instead of tax invoice. The bill of supply shall contain the following details:- a. name, address and GSTIN of the supplier; b. Consecutive serial No not exceeding 16 characters, the invoice number may contain alphabets or numerals or special characters i.e., dash or slash; c. date of its issue; d. name, address and GSTIN/ Unique ID Number, if registered, of the recipient; e. HSN Code of goods or Accounting Code for services; f. description of goods or services; g. value of goods or services taking into account discount or abatement, if any; and h. signature or digital signature of the supplier or his authorized representative. Receipt Voucher: If the assessee has received any advance payment with respect to any supply of goods or services or both, then he shall issue a receipt voucher containing the following details: a. name, address and GSTIN of the supplier; 179 P a g e

180 b. Consecutive serial No not exceeding 16 characters, the invoice number may contain alphabets or numerals or special characters i.e., dash or slash; c. date of its issue; d. name, address and GSTIN or UIN, if registered, of the recipient; e. description of goods or services; f. amount of advance taken; g. rate of tax (central tax, State tax, integrated tax, Union territory tax or cess); h. amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess); i. place of supply along with the name of State and its code, in case of a supply in the course of inter-state trade or commerce; j. whether the tax is payable on reverse charge basis; and k. signature or digital signature of the supplier or his authorized representative: Provided that where at the time of receipt of advance, l. The rate of tax is not determinable, the tax shall be paid at the rate of eighteen per cent; m. The nature of supply is not determinable, the same shall be treated as inter-state supply; Refund voucher: The refund voucher would be issued if no service is provided after receipt of advance payment and on which tax is already paid. Based on this refund voucher the supplier can claim back the tax already paid on the advance payment received. The refund voucher shall contain the following details:- e. name, address and GSTIN of the supplier; f. Consecutive serial No not exceeding 16 characters, the invoice number may contain alphabets or numerals or special characters i.e., dash or slash; g. date of its issue; h. name, address and GSTIN or UIN, if registered, of the recipient; i. number and date of receipt voucher issued in accordance with provisions of sub- rule 5; j. description of goods or services in respect of which refund is made; k. amount of refund made; l. rate of tax (central tax, State tax, integrated tax, Union territory tax or cess); 180 P a g e

181 m. amount of tax paid in respect of such goods or services (central tax, State tax, integrated tax, Union territory tax or cess); n. whether the tax is payable on reverse charge basis; and o. signature or digital signature of the supplier or his authorized representative. Payment voucher: The registered person, who is liable to pay tax under section 9(3) and 9(4), shall issue a payment voucher at the time of making advance payment to supplier. This is very important from the point of time of supply of goods or service and for payment of taxes. The payment voucher shall contain the following details: a. name, address and GSTIN of the supplier; b. Consecutive serial No not exceeding 16 characters, the invoice number may contain alphabets or numerals or special characters i.e., dash or slash; c. date of its issue; d. name, address and GSTIN of the recipient; e. description of goods or services; f. amount paid; g. rate of tax (central tax, State tax, integrated tax, Union territory tax or cess); h. amount of tax payable in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess); i. place of supply along with the name of State and its code, in case of a supply in the course of inter-state trade or commerce; and j. signature or digital signature of the supplier or his authorized representative. Tax invoice in special cases: 6. An ISD shall invoice / debit note / credit note for distribution of credit and it shall contain the following details: a. name, address and GSTIN of the Input Service Distributor; b. Consecutive serial No not exceeding 16 characters, the invoice number may contain alphabets or numerals or special characters i.e., dash or slash; c. date of its issue; d. name, address and GSTIN of the recipient to whom the credit is distributed; e. amount of the credit distributed; and f. signature or digital signature of the Input Service Distributor or his authorized representative: 181 P a g e

182 7. In case the supplier is a GTA supplying services in relation to transportation of goods by road in a goods carriage, the said supplier shall issue a tax invoice or any other document, shall contain the following details: a. gross weight of the consignment; b. name of the consignor and the consignee; c. registration number of goods carriage in which the goods are transported; d. details of goods transported; e. details of place of origin and destination; f. GSTIN of the person liable for paying tax whether as consignor, consignee or goods transport agency. The goods transported without invoice: In the following situations the goods can be transported without issue of invoice: a. supply of liquid gas where the quantity at the time of removal from the place of business of the supplier is not known, b. transportation of goods for job work, c. transportation of goods for reasons other than by way of supply, or d. such other supplies as may be notified by the Board. However delivery challan is required to be issued and the same shall contain the following details: a) serially numbered not exceeding sixteen characters, b) date and number of the delivery challan, c) name, address and GSTIN of the consigner, if registered, d) name, address and GSTIN or UIN of the consignee, if registered, e) HSN code and description of goods, f) quantity (provisional, where the exact quantity being supplied is not known), g) taxable value, h) tax rate and tax amount central tax, State tax, integrated tax, Union territory tax or cess, where the transportation is for supply to the consignee, i) place of supply, in case of inter-state movement, and j) signature. The details of the delivery challan shall be declared in the E-way. 182 P a g e

183 E-way bill: As per 22 nd Council meeting, the provisions of E-way bill are postponed and would be introduced in a staggered manner w.e.f and shall be rolled out nationwide w.e.f However still the provisions applicable in respect of E-way bill are discussed in subsequent paragraphs: As per Rule 138 of CGST Rules, 2017 every registered person who causes movement of goods should carry e-way bill along with invoice. The details of e-way bill are discussed in detailed in subsequent paragraphs. Every Registered person shall carry e-way bill along with invoice during the movement of goods, if the value of consignment exceeds Rs.50,000/-. The e-way bill shall be generated by the supplier for goods in movement: In relation to supply For reasons other than supply Inward supply from an unregistered person The e-way bill shall be generated based on the consignments electronically in common portal in GST EWB-01. Such e-way bill can be cancelled within 24 hours in common portal. The e-way bill can be generated by registered person or transporter at their option. Further e-way bill can be generated even if the value is less than Rs.50,000/-. Upon generation of E-way bill, a unique e-way bill number (EBN) shall be made available to the supplier, the recipient and the transport on the common portal. Further the transporter can carry IRN (invoice reference number) instead of duplicate invoice copy. By notification the commissioner may prescribe the class of transporters to obtain a unique Radio Frequency Identification Device (RFID) and it should get mapped with the e-way bill prior to movement of goods. The e-way bill would be valid for the period as provided below: Distance Upto 100 km Validity period 1 day 183 P a g e

184 For every 100 km or part thereof thereafter One additional day Provided that the Commissioner may, by notification, extend the validity period of eway bill for certain categories of goods as may be specified therein: Provided further that where, under circumstances of an exceptional nature, the goods cannot be transported within the validity period of the e-way bill, the transporter may generate another e-way bill after updating the details in Part B of FORM GSTEWB-01. Notwithstanding anything contained in this rule, no e-way bill is required to be generated (a) where the goods being transported are specified in Annexure; (b) where the goods are being transported by a non-motorised conveyance; (c) where the goods are being transported from the port, airport, aircargo complex and land customs station to an inland container depot or a container freight station for clearance by Customs; and (d) in respect of movement of goods within such areas as are notified under clause (d) of sub-rule (14) of rule 138 of the Goods and Services Tax Rules of the concerned State. Explanation. - The facility of generation and cancellation of e-way bill may also be made available through SMS. Documents and devices to be carried by a person-in-charge of a conveyance.- 1. The person in charge of a conveyance shall carry (a) the invoice or bill of supply or delivery challan, as the case may be; and (b) a copy of the e-way bill or the e-way bill number, either physically or mapped to a Radio Frequency Identification Device embedded on to the conveyance in such manner as may be notified by the Commissioner. 2. If the goods are transported without way bill in specified/notified States, the goods will be detained in the check post in terms of Section 129, tax and penalty will be imposed to release the goods. Whatever the GST paid at the Check post under section 129 will not be given as Credit in terms of Section A registered person may obtain an Invoice Reference Number from the common portal by uploading, on the said portal, a tax invoice issued by him in FORM GST INV-1 and 184 P a g e

185 produce the same for verification by the proper officer in lieu of the tax invoice and such number shall be valid for a period of thirty days from the date of uploading. Documents required for stock transfer is discussed in details in stock transfer chapter. Conclusion It has to be ensured that importance of formats and filling is communicated to the persons raising the invoices/documents. Further the tax invoice and others shall contain the details as prescribed. The receiver should obtain proper tax invoice for availing credit. Registered person needs to ensure that the formats are built in the accounting software to ensure that appropriate documents are raised at the appropriate time. 185 P a g e

186 Introduction: 22. Filing of Return (Last Return / First Return) Return is a statement of specified particulars relating to transactions undertaken by taxable person during a particular period. It is a mode of communication between taxpayers and department. There is a statutory obligation on each taxable person to furnish the return within the prescribed due dates. Return has been defined in section 2(86) of the GST Law, return means any return prescribed or otherwise required to be furnished by or under this Act or rules made thereunder. A taxable person has a legal obligation: (i) (ii) (iii) (iv) To declare his tax liability and credits availed during the period covered under return; To furnish details about the taxes paid; and To disclose such other aspects as may be applicable as per return format File correct and complete return within stipulated time frame. Importance of Return in GST Laws GST is a self-assessed destination based taxation system. The submission and processing of return is an important link between the taxpayer & tax administration as it s an important tool for: i. Compliance verification program of tax administration; ii. To declare tax liability for a given period; iii. Mode for transfer of information to tax administration; iv. Providing necessary inputs for taking policy decision; v. Management of audit and anti-evasion programs of tax administration; vi. Finalization of the tax liabilities of the taxpayer within stipulated period of limitation. Who needs to file Return in GST Regime? Every taxable person registered under the law is required to file his return. There are different formats of return for different categories of person i.e. supplier of goods/service, casual taxable persons, person deducting TDS, e-commerce operators, Input Service 186 P a g e

187 Distributor, Non-resident taxable person etc., each categories of person has to file return in the format as applicable to them. Type of various Returns/Statements and its periodicity (as originally prescribed): Each registered taxable persons may need to furnish various type of information with the department. These may be furnished by way of statement/returns. Following is summary of various returns/statements to be furnished under the GST law: For Regular Dealer:- Form No. Frequency Due Date Details to be Furnished Form GSTR-1 Monthly 10th of succeeding month Furnish details of outward supplies of taxable goods and/or services affected Form GSTR -2A Monthly 11 th of succeeding month Auto-populated in common portal wherein details of outward supply as furnished by supplier in GSTR-1 is communicated to recipient Form GSTR-2 Monthly 15th of succeeding month Details of inward supplies of taxable goods and/or services for claiming input tax credit. From GSTR - 1A Monthly Accept or reject by 17 th of next month The details of modification, added, corrected or deleted done in GSTR-2 by recipient is communicated to supplier. Form GSTR-3 Monthly 20th of succeeding month Monthly return on the basis of finalization of details of outward supplies and inward supplies along with the payment of amount of tax As per Rule 61(5) whenever time limit Form GSTR-3B Monthly 20 th of succeeding month of GSTR-1 and 2 is extended return in form GSTR-3B is to be filed by the registered taxpayer. Further for the said period GSTR-1, P a g e

188 &3 is also required to be filed and details furnished under GSTR-3B would be compared with GSTR-1, 2 & 3 filed for the said period. Any short payment is required to be paid along with interest. Form GSTR-9 Annually 31 st December of next financial year Annual Return furnish the details of ITC availed and GST paid which includes local, interstate and import/exports. Due to system issues in GST Network and other delays, the above due dates have been extended on a case to case basis for every month. For Composite Tax Payers Form Type Frequency Due Date Details to be Furnished Furnish all outward supply of goods Form GSTR-4 Quarterly 18 th of succeeding month and services. This includes autopopulated details from Form GSTR- 4A, tax payable and payment of tax. Furnish the consolidated details of Form 31 st December of next Annual quarterly returns filed along with tax GSTR-9A financial year payment details. Note 1: Form GSTR 4A shall be generated based on the details furnished by vendor of Composite dealers. This represents inward supply of composite dealer, which may be accepted by him with or without modification. Note 2: The due date for filing GSTR-4 for the period July 2017 to September 2017 has been extended to vide notification no. 41/2017-Central Tax dated Note 3: Further extension for filing GSTR-4 for the period July 2017 to September 2017 to 24 th December2017 vide notification no 59/2017- Central Tax dated 15 th November P a g e

189 Foreign Non- Resident Taxpayers Form Type Frequency Due Date Details to be Furnished 20th of succeeding Furnish details of imports, outward Form month or within 7 days Monthly supplies, ITC availed, tax paid, and GSTR-5 after the expiry of closing stock registration Note 1: The due date for filing GSTR-5 for the period July 2017, August 2017, September 2017and October 2017 has been extended to vide notification no. 60/2017-Central tax dated Online information and database access or retrieval services Form Type Frequency Due Date Details to be Furnished Service provided from a place outside Form 20th of succeeding Monthly India to a person in India other than a GSTR-5A month registered person. Note 1: The due date for filing GSTR-5A for the period July 2017, August 2017,September 2017 has been extended to vide notification no. 42/2017-Central tax dated Note 2: The due date for filing GSTR-5A for the period July 2017, August 2017, September 2017 and October 2017 has been extended to vide notification no. 61/2017-Central tax dated For Input Service Distributor Form Type Frequency Due Date Details to be Furnished Form 13th of succeeding Furnish the details of input credit Monthly GSTR-6 month distributed Note 1: Form GSTR-6A shall be generated based on details furnished by vendors towards supplies made to ISD. 189 P a g e

190 Note 2: As per 22 nd council meeting, the due date for filing GSTR-6 for the period July 17 has been extended to vide notification no. 43/2017-Central tax dated Note 3: The due date for filing GSTR-6 for the period July 17 has been extended to vide notification no. 62/2017-Central tax dated Note 4:The time limit for furnishing the return for the period August 17, September 17 and October 2017 will be notified later. For Tax Deductor (Provisions postponed till ) Form Type Frequenc y Due Date Details to be Furnished Form GSTR-7 Monthly 10th of succeeding month Furnish the details of TDS deducted Form GSTR-7A Monthly TDS certificate to be made available for download TDS Certificate capture details of value on which TDS is deducted and deposit on TDS deducted into appropriate Govt. For E-Commerce (Provisions itself postponed till ) Form Type Frequenc y Due Date Details to be furnished Form GSTR-8 Monthly 10th of succeeding month Details of supplies effected through e- commerce operator and the amount of tax collected on supplies details of outward supplies of goods or services or both effected through it, Form GSTR-9B Annually 31 st December of next financial year including the supplies of goods or services or both returned through it, and the amount collected under the said sub-section during the financial year, 190 P a g e

191 Note: This is in addition to GSTR-1, GSTR-2 and GSTR-3 which needs to be filed by each e- commerce operator. GSTR-8 is intended to provide details of Tax collected by E-commerce on the supply made through its platform. Annual Return: Every registered taxable person including person paying under composition scheme is required to file annual return as below: Form Type Frequenc y Due Date Details to be furnished Form GSTR-9 Annual 31 st December of next financial year Normal Taxable person: Annual Return furnish the details of ITC availed and GST paid which includes local, interstate and import/exports. Composition Taxable person: Furnish Form GSTR-9A Annual 31 st December of next financial year the consolidated details of quarterly returns filed along with tax payment details. By a E-commerce operator: Furnish details of outward supplies of goods or services or both effected through it, Form GSTR-9B Annual 31 st December of next financial year including the supplies of goods or services or both returned through it, and the amount collected under the said sub-section during the financial year, Final Return: For taxable person whose registration has been surrendered or cancelled 191 P a g e

192 Return Type Frequenc y Due Date Details to be furnished Form GSTR-10 One time return Within 3 months of cancellation of registration Furnish details of reversal of cenvat credit held in inputs, semi-finished, final goods and capital goods, tax payable and paid. Government Departments and United Nation Bodies Return Type Frequency Due Date Details to be furnished Form GSTR-11 Monthly 28th of succeeding month Details of inward supplies to be furnished by a person having UIN Requirement to file valid return Return would not be accepted if return has not been filed for earlier period: A registered taxable shall not be allowed to furnish return for a tax period if valid return for any previous tax period has not been furnished by him. Return to be filed on payment of tax (set-off of liability): Every registered taxable person, liable to furnish return, is required to pay the tax as declared in the return to the appropriate government not later than the last date on which he is required to furnish such return. However, if aforesaid payment is not made to the government, then such return will not be considered as a valid return for allowing input tax credit in respect of supplies made by such person. Payment against the monthly tax liability would be considered as paid only once the liability is set-off in the GST return against such payment/input tax credit. Return to be filed in case of Nil Supply also: Section 39 (8) of the CGST Act, 2017 provides that every registered taxable person shall furnish a return for every tax period whether or not any supplies of goods and/or services have been effected during such tax period. Return not to be revised: Return once filed cannot be revised by taxable person. However, if any omission or incorrect particulars are noticed after filing of return, he may rectify such error in the month/quarter in which error is noticed. It is to be 192 P a g e

193 noted that the last date for such rectification is September or second quarter of next financial year or date of filing of annual return, whichever is earlier. No rectification can be made when such discovery is noticed as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities. Other aspects with respect to returns: The due dates for Form GSTR-1, for the period July 2017, August 2017, September 2017 and October 2017 has been extended to vide notification no. 58/2017-Central tax dated and for July to September 2017 the due date his 31 st December 2017.For subsequent months the due dates are below. SI No Months for which the details in FORM GSTR-1 are furnished Due date 1 November, th January December, th February January, th March February, th April March, th May 2018 Quarterly return 6 October -December th February January to March th April GSTR 2 and 3 has been kept on hold till further notification will be issued by the government, during these periods GSTR-3B need to be filed by the taxpayer. 2. If the aggregate turnover of the tax payer is up to Rs.1.50 crores, the assessee can file Form GSTR-1, 2 & 3 on a quarterly basis from July 2017 onwards. However, they are required to file monthly Form GSTR-3B return for the period July to March How to file return There would be a GST common portal to file return. Returns in GST System could be filed by tax payer: by himself logging on to the GST System using his own user ID & password; or through his authorized representative using the user Id & password (allotted to the authorized representative by the tax authorities), as chosen at the time of registration, logging on to the GST System 193 P a g e

194 Return may be filed through Tax Return Preparers (TRPs) also. It is relevant to note that the government has approved some GSPs. Access could be made to GSTN by using the products developed by GSPs. The return can be filed through online or offline tool provided by the GSTN. Further there are four methods in filling the data in offline tool, the same is provided below: - Manual entry of invoice data in the respective tables in offline tool - Import of all table data from excel sheet provided along with offline tool - Copy past from the excel sheet to offline tool, this process need to done for each table of Form GSTR-1. - Import of data from csv file provided along with offline tool, even this need to be done table basis. After uploading the data into offline tool, assessee needs to verify and generate JSON file. Once the JSON file is generated the same need to be uploaded after login into common portal. If any errors identified, then error report would be provided in common portal and such error report can be opened in offline tool. Steps for return filling Step-1:- The taxpayer will upload the final Form GSTR-1 return form either directly through data entry at the GST Common Portal or by uploading the file containing the said Form GSTR-1 return form through Apps by 10 th day of month succeeding the month during which supplies has been made. The increase / decrease (in supply invoices) would be allowed, only on the basis of the details uploaded by the counter-party purchaser in Form GSTR-2, which shall be communicated to supplier in Form GSTR-1A. In other words, the supplier would not be allowed to include any missing invoices on his own after 10th day of the month. It is expected that GSTN may facilitate periodic (may be daily, weekly etc.) upload of such information to minimize last minute load on the system. GSTN will facilitate offline preparation of Form GSTR-1. Furnishing details of outward supplies (as per original due dates) Who Every registered person (Supplier) 194 P a g e

195 When 10th of following month Where Form GSTR 1 What Invoice wise details of all - Consolidated details of all - 1. Inter-state supplies made to registered persons 2. Inter- state supplies made to unregistered persons (Invoice value more than 2.5 Lakhs) 2. State wise inter-state supplies made to unregistered persons (Invoice value less than 2.5 Lakhs) 3. Intra-state supplies made to registered persons 1. Intra-state supplies made to unregistered persons for each rate of tax Other Points 1. The details furnished in Form GSTR 1 by the supplier shall be made available to the recipient in, Form GSTR 4A Compounding taxpayer Form GSTR 6A ISD recipients Form GSTR 2A Others 2. The said details shall be made available to the recipients only after the due date of filing of GSTR 1 Step-2:- GST Common Portal (GSTN) will provide information furnished by taxpayer in the Form GSTR-2A to the recipient. Such person (recipient) is required to upload Form GSTR-2 of based on the supply invoice details reported by the counter-party taxpayer (supplier) received by it in Form GSTR-2A. Step-3:- Purchasing taxpayer will accept / reject/ modify such auto-drafted provisional Form GSTR-2A. (A taxpayer will have the option to download his provisional purchase statement from the Portal or through Apps using Application Programming Interface (APIs) and update / modify it off-line). Step-4:-Purchasing taxpayer will also be able to add additional purchase invoice details in his GSTR-2 which have not been uploaded by counter-party taxpayer (supplier) as described in above, provided he is in possession of valid invoice issued by counter-party taxpayer and he has actually received such supplies. All the invoices would be auto-populated in the ITC 195 P a g e

196 ledger of taxpayer. The taxpayer would, however, indicate the eligibility / partial eligibility for ITC in those cases where either he is not entitled or he is entitled for partial ITC. Step-5:-Details furnished by recipient in Form GSTR-2 but not furnished by his counterparty in GSTR-1 shall be communicated to the supplier in Form GSTR-1A. The supplier may accept the changes suggested in Form GSTR-1A, fully or partially, or reject it. To the extent, changes suggested Furnishing details of inward supplies: Who Every registered person (Recipient) When 15th of following month Where Form GSTR 2 What Invoice wise details of all Inter-state supplies received from registered or unregistered person Intra-state supplies received from registered or unregistered person Import of goods and services made Debit and credit notes, if any received from supplier Where the recipient is able to determine the eligibility of input tax credit at the invoice level, shall be specified by the recipient Ex: T1, T2, T3 & T4. Declare the quantum of ineligible input tax credit on inward supplies that are relatable to non-taxable supplies or used for other than business purposes and are not determined at the invoice level. Other Points 1. The details in Form GSTR 2 shall be filled based on details contained in Part A, B C & D of Form GSTR 2A 2. The recipient is also allowed to include details of other inward supplies in addition to the details furnished in GSTR 2A Step-6:-Taxpayers will finalize their Form GSTR-1 and Form GSTR-2 by using online facility at Common Portal or using GSTN compliant off-line facility in their accounting applications, determine the liability on their supplies, determine the amount of eligible ITC on their purchases and then generate the net tax liability from the system for each type of tax. Cash details as per personal ledger/ carried forward from previous tax period, ITC carried forward from previous tax period, ITC reversal and associated Interest/Penalty, taxes paid during the current tax period etc. would get auto-populated in the Form GSTR P a g e

197 Who Every registered person Excluding: Input service distributor Non-resident taxable person Compounding tax payer Person deducting tax at source When 20th of following month Where Form GSTR 3 What Part A On the basis of information furnished through returns in Form GSTR 1, 2 and based on other liabilities of preceding tax periods Part B Liability towards tax, interest, penalty, fees or any other amount payable under the act or rules Other Points When there is extension of time limit for furnishing details in Form GSTR 1 and 2 then monthly return shall be filed in Form GSTR 3B Step-7:-Taxpayers will pay the amount as shown in the draft Form GSTR-3 return generated automatically at the Portal post finalization of activities mentioned in Step 6 above. Step-8:-Taxpayer will debit the ITC ledger and/or cash ledger and mention the debit entry No. in the Form GSTR-3 return and would submit the same. Consequences of delay in filing of return: Late fee Section 47 (1) of the CGST Act, 2017 provides that any registered taxable person who fails to furnish the details of outward or inward supplies required under Section 37 or 38 or returns required under Section 39 or Section 45 by the due date shall be liable to a late fee of Rs.100/- for every day during which such failure continues subject to a maximum of Rs.5,000/-. The late fee has been reduced to Rs. 25/- for every day and for Nil return the late fee has been reduced to Rs. 10/- for every day. Section 47(2) of the CGST Act, 2017 provides that any registered taxable person who fails to furnish the return required under Section 44 (Annual Return) by the due date shall be liable to a late fee of Rs.100/- for every day during which such failure continues subject to maximum of an amount calculated at a quarter percent of his aggregate turnover in the state 197 P a g e

198 Return Defaulter Where a registered taxable person fails to furnish a return under Section 39 or Section 44 or Section 45, a notice shall be issued requiring him to furnish such return within 15 days. The notice shall be in the Form GSTR-3A that shall be issued electronically. Conclusion It is expected that due to online filing of returns and statements, and consequent reduced interaction with department, delays and other issues faced by the assesses would be substantially reduced over a period of time. 198 P a g e

199 23. Payment of GST Introduction Payment is referred to be an event which implies an obligation on the tax payer to discharge the tax liability. Compared to service tax regime, the time limit for payment of tax under GST is extended and similar to VAT provisions of most of the States. Payment of taxes within the due date is also critical in terms of filing of online return (to setoff liability) and availment of input tax credit in the hands of the recipient against those supplies for which tax is to be paid. Payment under GST The tax payer registered under GST need to ascertain his liability on month on month basis (IGST, CGST, SGST and UTGST) and deposit the same before filing the return prescribed under section 39 of CGST, Act. The GST liability can be paid through cash or input tax credit. The input tax credit as self-assessed in the Form GSTR-2 filed by the assessee would be credited to Electronic credit ledger on provisional basis under section 41 of the Act. In case of any mismatch as per section 42 and 43 of the CGST Act,2017 would be treated as output tax liability and recovered along with interest from the recipient / supplier respectively. Under GST the payment process is through online and following three ledgers plays important role, - Electronic cash ledger - Electronic credit ledger - Electronic tax liability ledger The above three ledgers of each tax payers would be maintained at common portal and also required to be reconciled with books of accounts. Section 49 of the CGST Act, provides provision for payment of tax, interest, penalty and other amounts. The payments need to be made by creating a challan in PMT-06 in the GST portal by providing the details of amount payable towards CGST/SGST/IGST/UTGST/ interest/fee/ penalty/other amounts. Such challan would be valid only for 15 days. Further the Act provided the 4 major heads and under each major heads 5 minor heads and payment 199 P a g e

200 made under each head need to adjusted against same head and cross adjustment is not permissible. The amount paid under section 49 shall be credited to the electronic cash ledger of such tax payer. In case there is any balance in the electronic cash ledger or credit ledger after payment of amount payable under the Act or rules may apply for refund of such balance in accordance with provisions of section 54 of the Act. The manner of maintaining electronic cash and credit ledgers are prescribed in the CGST Rules, 2017 Electronic Cash Ledger As per rule 87 of the CGST Rules, 2017 the electronic cash ledger shall be maintained in FORM GST PMT-05 for each registered taxable person on the Common Portal (GSTN server). The cash deposit made by the tax payer towards payment of tax, interest, penalty, fee or any other amount would be credited in the cash ledger and such cash ledger would be debited as and when the amount is utilized to discharge respective liabilities. The amount deducted at source or collected at source (TDS and TCS) on account of a taxable person shall get credited to this electronic cash ledger. The refund claimed by the tax payer would be debited in cash ledger and any rejection of claim would be automatically credited to cash ledger. The cash deposit can be made through any of the following modes: i. Internet Banking through authorized banks; ii. Credit card or Debit card after registering the same with the Common Portal; iii. National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS) from any bank; iv. Over the Counter payment (OTC) through authorized banks for deposits up to ten thousand rupees per challan per tax period, by cash, cheque or demand draft. Restriction of Rs. 10,000/- is not applicable to Government department/ recovery agents/officer authorised in this regard. 200 P a g e

201 The cash deposited through above modes would be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder. If any unregistered person making payment shall obtain a temporary identification number from the authorised officer and could deposit using Form GST PMT-5. A Challan Identification Number (CIN) will be generated on successful credit of the amount to the concerned government account and such CIN shall be indicated in the challan. When due to any technical fault, CIN is not generated, then the assessee may represent electronically in FORM GST PMT-07. Electronic Credit Ledger Any claim of input tax credit (CSGT, SGST & IGST) on supply of goods and or services shall be credited to the electronic credit ledger maintained in Form GST PMT-02. Further, such electronic credit ledger shall be debited on utilization for making tax payment under the provisions of the GST Act. The input tax credit available in credit ledger can be used for payment of output tax under CGST or IGST Act. The manner of utilization of IGST/CGST/SGST credits lying as input tax credit in electronic credit ledger would be as under: a) IGST balance shall first be utilized to pay IGST liability and the balance if any thereafter may be utilized towards payment in the order of CGST, SGST and UTGST. b) CGST credit balance shall be utilized first towards payment of CGST liability and balance if any could be used to pay the IGST liability. c) SGST credit shall be utilized towards payment of SGST liability, the balance if any thereafter could be utilised for payment of IGST. d) UTGST credit shall be utilized towards payment of UTGST liability, the balance if any thereafter could be utilised for payment of IGST. e) The input tax credit on account of CGST shall not be utilized towards payment of SGST. Similarly, the credit on account of SGST shall not be used for payment of CGST. 201 P a g e

202 Unutilized balance in Cenvat credit ledger can be claimed as refund by a registered taxable person at the end of any tax period at the option of tax payer in case of exports or where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. The amount to the extent of the refund claim shall be debited in the said ledger and on account of rejection; the credit shall be re-credited to the electronic credit ledger by the proper officer by an order made in Form GST PMT-03. A registered person shall, upon noticing any discrepancy in his electronic credit ledger, communicate the same to the officer exercising jurisdiction in the matter, through the common portal in FORM GST PMT-04. Electronic Tax Liability Register All liabilities of a taxable person under GST Act shall be recorded and maintained in an electronic register called Electronic Tax Liability Register (ETLR). Rule 85 of the CGST rules provides that the ETLR shall be maintained in Form GST PMT-01 on the Common Portal. The electronic tax liability register of a registered taxable person shall be debited by: (a). The amount payable towards tax, interest, late fee or any other amount payable as per the returns filed. (b). The amount of tax, interest, penalty or any other amount payable as determined by a proper officer in pursuance of any proceeding under the Act. (c). The amount of tax and interest payable as a result of mismatch of input tax credit. (d). Any amount of interest that may accrue from time to time. Electronic tax liability register shall be credited as and when the taxable person discharges his liability either through Electronic Credit Ledger or Electronic Cash Ledger. The following amounts shall be payable by debiting electronic cash ledger:- a. The amount deducted under section 51; or b. The amount collected under section 52; or c. The amount payable under section 9(3) or 9(4); or d. The amount payable under section 10; or e. The amount payable under 5(3) or 5(4) of IGST Act; or f. The amount payable under section 7(3) or 7(4) of UTGST Act; or 202 P a g e

203 g. Any other amount payable towards interest, penalty, fee or any other amount under this Act, IGST Act. A Unique Identification Number (UIN) shall be generated at the common portal for each debit or credit to the electronic cash or credit ledger, as the case may be. Further, UIN relating to discharge of any liability shall be indicated in the corresponding entry in the electronic tax liability register. Interest on delay payment: In case the assessee fails to pay the tax or any part thereof to the Government within the prescribed period under GST Act, he is liable to pay the same along with interest. Interest would be computed from the day succeeding the day on which such tax was due to be paid. Interest in case of mismatch of input tax credits: In case the assessee claims an undue or excess input tax credit under sub-section 42(10) or claims an undue or excess reduction in output tax liability under section 43(10), then such excess or undue claim or such excess or undue reduction shall require to be paid along with interest under section 50(3) of the Act. The interest rate is as notified under Notification 13/2017 Central Tax dt is as under Serial Number Section Rate of interest 1. Sub-section (1) of section sub-section (3) of section sub-section (12) of section section proviso to section P a g e

204 Conclusion To sum up, on one part there is an Electronic tax liability register (ETLR) and on the other side there are two ledgers namely Electronic Cash Ledger (ECaL) & Electronic Credit Ledger (ECrL). The Credits in ETLR would be the debits of EaCL/ECrL. 204 P a g e

205 24. Matching Credit- Credit Procedure Introduction Under the GST regime, matching of credits encompasses the following dual aspect: 1. Matching of the input tax credits claimed by recipient with the corresponding outward supplies effected by the supplier 2. Matching of the claim of reduction in the outward liability by the supplier with the corresponding input tax credit claimed by the recipient of the said supply. Matching, reversal and reclaim of input tax credit - Section 42 of the CGST Act, 2017 deals with the matching of details of inward supply furnished by the registered person and same shall be matched with 1. The outward details as furnished by the corresponding supplier in his valid return for the same period or any previous tax period 2. The integrated goods and service tax paid under section 3 of Customs Tariff Act, 1975 in respect of imported goods 3. Duplication of claims of input tax credit The same could be categorised as matched supply or unmatched supply or duplicates. The input tax credit would be allowed to registered person under section 41 provisionally and such ITC availed on inward supply shall be matched with the following contents after due date of furnishing GSTR-3: a. GSTIN of the supplier; b. GSTIN of the recipient; c. Invoice or debit note number; d. Invoice or debit note date; e. Taxable value; and f. Tax amount Treatment of matched supply The inward supply on which ITC is claimed would be matched with the corresponding details of the outward supply as furnished by the supplier. The claim of input tax credit shall be considered as matched, where the amount of input tax credit claimed is equal to or less than the output tax paid on such tax invoice or Debit Note, as the case may be, by the corresponding supplier. 205 P a g e

206 If any inward supply is not matched with the outward supply furnished by the corresponding supplier, would be considered as mismatched. Treatment of unmatched supply In case of unmatched supply, the same shall be communicated to both the supplier as well as recipient in Form GST MIS-1 through common portal. After communication, the recipient or supplier is required to rectify such discrepancy in the return to be filed for the month in which such discrepancy is communicated. If the rectification is not done, then the input tax credit availed by the recipient would be added to his output tax liability along with interest for month succeeding the month in which the discrepancy is communicated. In case the supplier rectifies the mistake at a later date, then the recipient is eligible to reduce such amount from his output tax liability. Further the interest paid shall be refunded to the recipient in cash ledger. Provided such interest shall not exceed the amount of interest paid by the supplier. Treatment of duplicates Duplicates are those items which are entered more than once in the GSTR 2 furnished by the recipient. Since it is the mistake of the recipient, the duplicates shall be communicated only to the recipient. The same is required to rectified by the recipient, if not such amount shall be added to the output liability of the recipient of the supply in the month in which such discrepancy is communicated. Also, the recipient is liable to pay interest at a rate as mentioned in sub section (1) of section 50 on the amount so added from date of availing the credit till the date the corresponding additions are made (and not till the date when the same amount is paid to the government) Matching, reversal and reclaim of reduction in output tax liability - Section 43 deals with the matching of claim of reduction in output liability by way of credit notes. Details of credit not pertaining to outward supply furnished by a supplier shall be matched with, 1. Corresponding reduction in ITC claimed by the recipient 2. Duplication of claims for reduction in output tax liability 206 P a g e

207 The same could be categorized as matched supply or unmatched supply or duplicates. The matching of reduction of output tax liability would be matched with following elements: a. GSTIN of the supplier; b. GSTIN of the recipient; c. Credit note number; d. Credit note date; e. Taxable value; and f. Tax amount The reduction in output liability is accepted only if; The claim of reduction of output tax liability due to issuance of credit notes in FORM GSTR-1 that were accepted by the recipient in FORM GSTR-2 without amendment shall be treated as matched if the corresponding recipient has furnished a valid return. The claim of reduction in the output tax liability shall be considered as matched, where the amount of reduction claimed is equal to or less than the claim of reduction of input tax credit admitted and discharged on such credit note by the corresponding recipient in his valid return. Treatment of unmatched supply In the following situations the supply shall be treated to unmatched, o When the reduction in output tax liability is more than the reduction claimed in corresponding input tax credit o Corresponding credit note is not declared by the recipient in his valid returns Such discrepancy (unmatched supplies) shall be communicated to both the parties The supplier shall make suitable rectifications in the statement of outward supplies and the recipient shall make suitable rectifications in the statement of inward supplies in the month in which such discrepancies are communicated. In case rectification is made: 207 P a g e

208 Rectification made By supplier By recipient Deleting or correcting details of outward supply in his valid return Adding ot correcting the details of inward supply in his return To match the details of inward supply declared by recipient To match the outward supply declared by the supplier In case rectification is not made by supplier or recipient: Rectification not made An amount to the extent of discrepenacies shall be added to the output tax liability of the supplier Debited to the tax liablity register +Shown in supplier s return in Form GSTR 3 Liable to pay interest from the date of claim for reduction in output tax liability till corresponding reductions are made Treatment of duplication of credit note Duplicates are those credit notes which are entered more than once in the GSTR 1 of the supplier. Since it is the mistake of the supplier the duplicates shall be communicated only to the supplier. The same is required to rectified by the supplier, if not such amount shall be added to the output liability of the supplier in the month in which such discrepancy is communicated. Also, the supplier is liable to pay interest at a rate as mentioned in sub section (1) of section 50 on the amount so added from date of availing the credit till the date the corresponding additions are made (and not till the date when the same amount is paid to the government). 208 P a g e