28 September Draft Goods & Services Tax Rules on Registration, Invoice, Payment, Return and Refund. Dimensions - GST Edition

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1 28 September 2016 Dimensions - GST Edition Moving fast track to meet the April 2017 deadline for implementation of GST, the Government has come out with draft rules and their formats relating to registration, invoice, payment, return and refund under GST. The rules are expected to be finalized in the second meeting of the GST Council scheduled on 30 September 2016 In this alert, we have summarized key points on the draft rules and our comments thereon. Draft Goods & Services Tax Rules on Registration, Invoice, Payment, Return and Refund 1. Draft Goods & Services Tax Registration Rules, 20-- ( Draft Registration Rules ) Application for Registration For the purpose of making the application for new registration, the applicant would be required to provide the following details in the Common Portal: Part A of Form GST REG-01 Part B of Form GST REG-01 Declare the PAN, mobile number and address on the common portal PAN would be verified by the Common portal from CBDT database and mobile number and address is to be validated by the Applicant through onetime password Once the details above are validated, the applicant would be required to file an application online along with specified documents Form GST REG-02 On receipt of the application, an acknowledgement would be generated in Form GST REG-02 For a casual taxable person, the draft Rules provide for a temporary identification number which would be granted by the Common portal once the applicant makes advance deposit of estimated tax liability for the period for which registration is sought. The intent of the Rules is to completely automate the registration process and reduce the interface between the tax payer and the authorities. However, by maintaining the procedure for site verification by authorities [at their discretion] and extending the same to service providers, would dilute the said effect. 1 P a g e

2 Verification of application Once the application is filed, the proper officer would examine the application and documents submitted. Diagrammatic representation of the process of verification is reproduced below: The procedure for application and verification of registration is similar to the one currently being followed by the DGFT for IEC applications. However, it would be important to note that the draft Rules provides for deemed approval of registration in case the officer fails to take any action within three working days from the date of submission or within seven days from the date of receipt of clarification. Migration of persons registered under Earlier Law Every registered person under an earlier law and having PAN would be granted registration on a provisional basis and certificate of registration in Form GST REG-21 with GSTIN would be made available on the Common Portal Every person who has been granted provisional registration would be required to submit an application in Form GST REG-20 duly signed along with requisite documents on the Common portal In case the application is found to be correct and complete, certificate of registration in Form GST REG- 06 would be granted. However, if the application is incomplete in any manner, an officer may cancel 2 P a g e

3 provisional registration in Form GST REG-22. Before cancellation of registration, the officer may service notice to show cause in Form GST REG-23 with reasonable opportunity of being heard. In case a person is not liable to be registered under GST Act, the said person may at his option file application in Form GST REG-24 for cancellation of registration that was granted provisionally. Though draft Rules suggests full automation in the registration process, the multiplicity of forms prescribed (26 forms to be exact) would create confusion amongst businesses. Further, existing registered taxable person, at the time of migration, would only be granted provisional certification for a limited period and would be required to obtain fresh registration, thereby simply creating a compliance backlog. There is also ambiguity in the Draft Registration Rules on how provisional GSTIN would be allotted to Service Providers having centralized registration and whether branches covered would be required to apply for fresh registration. Display of Registration certificate and GSTIN in the name board Every registered person would be required to display his certificate of registration in prominent location at his principal place of business and at every additional place/s of business. Further, he would be required to display GSTIN in the name board exhibited at the entry of the principal place of business and at every additional place/s of business. Additional compliance in terms of display of GSTIN in the name board appears to be unwarranted. Amendment of Registration For amendment in Form GST REG-01/07/09/10, application for amendment to be filed electronically in Form GST REG-11 along with requisite documents within 15 days of such change For change in nature of business, principal place of business, details of partners or directors or equivalent, officer would approve amendment within 15 working days from the date of receipt of application in Form GST REG-11 and issue an order in Form GST REG-12. The amendment would take effect from the date of occurrences of the event warranting amendment For other changes, certificate of registration would stand amended upon submission of application in Form GST REG-11. However, in case of change in constitution of any business resulting in change of PAN of registered person, fresh application in Form GST REG-01 would be required Provisions related to amendment suggest that minor changes would be amended on real time basis and only in case of substantial changes such as change in place of business or stakeholders, prescribed procedure is to be followed. 3 P a g e

4 Other relevant provisions A person with multiple business verticals within a State and who intends to obtain separate registration for any of its business verticals would be granted separate registration. The said person would be required to file separate registration for each vertical in application form GST REG-01 A person requiring to deduct tax or who is required to collect tax at source would be required to make an application in Form GST REG-07. The proper officer may grant registration in Form GST REG-06. In case the person is no longer required to deduct tax, the proper officer may cancel the registration and communicate the same in Form GST REG-08 A Specialized agency or United Nation organisation or any multilateral financial institution and organisation notified under the United Nations (Privileges and Immunities) Act, 1947 or any other person as may be notified would be required to obtain unique identification number and would be required to submit application in Form GST REG-09 A non-resident taxable person would be required to file application in Form GST REG-10 and will be granted temporary identification number by Common Portal on payment of advance deposit of tax which would be equivalent to estimated tax liability of such person during the period for which registration is sought In case the officer, during the course of any survey, inspection, search, enquiry or any other proceeding under the Act, finds a person liable to obtain registration, the officer may register the said person on a temporary basis and issue an order in Form GST REG-13 A registered taxable person seeking cancellation of registration may submit an application in Form GST REG-14. However, in case of voluntary registration, no application for cancellation would be grated before the expiry of one year. All the applications including reply to notices, returns, appeals or any other document would be required to be submitted electronically at the Common portal with digital signature certificate. For a Company or a firm, each document is to be signed either by chief executive officer or partner or authorized signatory. In case the officer is satisfied that physical verification of the place of business is required, he may get such verification and upload verification report along with other documents including photographs in Form GST REG-26 The Draft GST provisions allow separate registration for each business vertical. However, before opting for the said option, businesses should think through before opting for separate registration as it may create additional tax liability on transaction between verticals. Currently, non-resident dealers operate through agents for undertaking sale of goods and are not required to obtain registration. However, under the GST regime, they may necessarily be required to obtain registration. In the draft Registration Rules, limited window has been given to non-resident dealers instead it is suggested that option should be given to non-resident dealers to obtain registration 4 P a g e

5 as regular taxable person for a longer period of time without requiring them to discharge estimated tax liability as advance taxes. 2. Draft Goods & Services Tax Invoice Rules, 20-- ( Draft Invoice Rules ) The Draft Invoice Rules provides for mandatory particulars to be followed while raising an invoice or bill of supply (in case of non-taxable supplies) or for issuing supplementary tax invoice and credit or debit notes. In the table below, we have captured particulars to be captured in different cases: Sr No. Particulars 1 Name, address and GSTIN of the Supplier / ISD Tax Invoice (For taxable supply) Bill of Supply (For nontaxable supply) Supplementary Tax Invoice and Credit or Debit notes Input Service Distributor 2 A consecutive serial number containing only alphabets and/or numerals, unique for a financial year (Note 1) 3 Date of its issue. 4 Name, address and GSTIN/ Unique ID Number, if registered, of the recipient. (Note 2) 5 Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered and where the taxable value of supply is fifty thousand rupees or more. 6 HSN code of goods or Accounting Code of services, description of goods / services, quantity, value, rate & type of tax and whether tax is payable under reverse charge 7 Place of supply along with the name of State, in case of a supply in the course of inter-state trade or commerce. - (No limit on the taxable value of supply) Place of delivery where the same is different from the place of supply. (Note 3) 8 Signature or digital signature of the supplier or his authorized representative. 9 Name, address and GSTIN of the supplier of services, the credit in respect of which is being P a g e

6 Sr No. Particulars Tax Invoice (For taxable supply) Bill of Supply (For nontaxable supply) Supplementary Tax Invoice and Credit or Debit notes Input Service Distributor distributed and the serial number and date of invoice issued by such supplier. Note 1: It is not clear whether the consequetive serial number would be a predefined format to be adopted by the businessess or will be a series generated by the Common Portal Note 2: Under the GST Regime, the supplier shall be required to maintain the GSTIN/ Unique ID Number for every transaction. Note 3: The invoice under GST requires mention of place of supply and place of delivery separately. This may be required from the perspective of bill-to-ship-to model. Other relevant provisions Provisions related to time-limit for issuance of Invoice have been kept similar to the existing provisions under Service Tax Law i.e. within 30 days from the date of supply of services and for banking and financial institution, it would be 45 days. In case of exports, new guidelines have been issued to carry an endorsement Supply meant for export on payment of IGST or Supply meant for export under bond without payment of IGST along with prescribed details mentioned in the rules. Currently, for export of goods, businesses would be required to issue ARE form along with other export documents. Invoices for goods are to be issued in triplicate and for services in duplicate. Every registered taxable person may obtain an Invoice Reference Number from the Common Portal by uploading details of tax invoice issued in FORM GST INV-1 and may only be required to produce the said reference number at the time verification by the proper officer. The rules also provide for issue of tax invoice in special cases for ISD, Banking company or a financial institution including a non-banking financial company, goods transport agency and passenger transportation service. For these special cases, particulars mentioned above are not mandatory and would only be required to raise tax invoice with minimum details. The relaxation in terms of generating invoice reference number and not requiring transporter to carry copy of the invoice may cut down paperwork during movement of goods 3. Draft Goods & Services Tax Payment Rules, 20-- ( Draft Payment Rules ) The Draft Payment Rules provide for maintaining the following three registers on the Common Portal: Electronic Tax Liability Register 6 P a g e

7 Electronic Credit Ledger Electronic Cash Ledger Electronic Tax Liability Register All liabilities of a taxable person under the Act shall be maintained in FORM GST PMT-1 on the Common Portal. o Part- I: Return related liabilities o Part II: Other than return related liabilities The amounts payable by the taxable person shall be debited to the said register and following amounts shall be credited to the said register: o Payment made by debiting the electronic credit ledger or electronic cash ledger o Tax deducted at source and tax collected at source o Relief given by the appellate authority o Payment of tax, interest and penalty specified in the show cause notice or demand order Return would be treated as invalid if closing balance in Part-I is positive. Further, the taxpayer would not be able to file return of a tax period if liabilities relating to previous tax period's return are not discharged completely. Electronic Credit Ledger Ledger shall be maintained in FORM GST PMT-2 for each registered taxable person on the Common Portal. Credit of inputs, capital goods, reverse charge claimed in return; Credit received through ISD; credit on account of merger, pre-registration etc. will be recorded separately in the ledger. Refund claimed for unutilized amount will be reduced and if rejected or withdrawn will be credited back by an order made in FORM GST PMT-2A. Electronic Cash Ledger Ledger shall be maintained in FORM GST PMT-3 on the common portal for crediting the amount deposited The deposits can be made through any of the following ways: i) Internet Banking through authorized banks; ii) Credit card or Debit card after registering the same with the Common Portal through the authorized bank; 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 A challan in FORM GST PMT-4 shall be generated on the Common Portal and details of the amount to be deposited to be entered. It shall be valid for a period of fifteen days. 7 P a g e

8 Any payment required to be made by unregistered person, shall be made on the basis of a temporary identification number and the details of such payment shall be recorded in a register in FORM GST PMT-5, to be maintained on the Common Portal. A Challan Identification Number (CIN) will be generated by the collecting Bank and the same shall be indicated in the challan. On receipt of CIN from the authorized Bank, the said amount shall be credited to the electronic cash ledger. Identification number for each transaction A unique identification number shall be generated at the Common Portal for each debit or credit to the electronic cash or credit ledger. The unique identification number relating to discharge of any liability shall be indicated in the corresponding entry in the electronic tax liability register. 4. Draft Goods & Services Tax Return Rules, 20 ( Draft Returns Rules ) The Draft Returns Rules provides for various types of forms to be filed for taxable person: Sr. Form type No. 1. GSTR-1 GSTR-1A 2. GSTR-2 GSTR-2A Particulars Outward supplies Details on inward supplies added, corrected or deleted by the recipient would be made available to supplier in GSTR-1A Inward supplies Details of outward supplies of supplier would be available to recipient in GSTR-2A Recipient of goods / services would be required to specify inward supplies in respect of which input tax credit is not eligible either fully or partially, declare quantum of ineligible credit related to non-taxable supplies Details of invoices furnished by ISD Details of TDS / TCS 3. GSTR-3 Monthly return Part A details of GSTR-1 & 2 would be generated Part B discharge tax liability by debiting electronic cash / credit ledger 4. GSTR-4 Quarterly return to be filed by Composition dealer GSTR-4A 5. GSTR-5 Submission of return by Non-resident dealer 6. GSTR-6A Submission of return by Input Service Distributor 7. GSTR-7 GSTR-7A Submission of return by Person required to deduct tax at source Certificate of TDS would be made available electronically to deductee in Form GSTR- 7A 8. GSTR-8 Submission of return by E-commerce operator 9. GSTR-3A Notice to person who fail to file returns 10. GSTR-9 GSTR-9A GSTR-9B Annual return for registered taxable person Annual return for Composite dealers 8 P a g e

9 Sr. No. Form type Particulars Registered taxable person having aggregate turnover exceeds one crore rupees to get his accounts audited and furnish a copy of audited annual accounts and reconciliation statement duly certified in Form GSTR-9B 11. GSTR-10 Final return for taxable person who applies for cancellation The Draft Return Rules provides for 27 different returns and statements to be submitted under different scenarios. Further, it appears that the formats are exhaustive. For example, in case of annual return, businesses would be required to file 12 annexures as part of the return. Number of returns to be filed for businesses would multiply with the number of States in which it operates. Matching concept for claim of input tax credit and final acceptance The Draft Returns Rules suggests that claim for input tax credit on inward supplies including imports shall be matched after due date for furnishing the returns in Form GSTR-3 Final acceptance of input tax credit would be communicated in Form GST ITC-1 In case of any discrepancy in the claim of input tax credit (credit claimed by recipient more than the tax declared by supplier), the mis-match would be made available in Form GST ITC-1 to both supplier as well as to the recipient. In case discrepancy is not rectified, the same would be added to the output tax liability of the recipient in his return in Form GSTR-3 Similar matching concept for output tax liability has been introduced in case of reduction in tax liability on account of credit notes issued in relation to outward supply Duplication of claims in input tax credit or reduction in output tax liability would be communicated in Form GST ITC-01 The 26AS concept under the Income tax has been introduced in GST. However, the major difference is that the volume of transactions is likely to be much larger as opposed to Income tax where the withholding is only on certain specified services. This gets further complicated by Place of Supply Rules in case the vendor does not correctly determine place of supply, which would result in a mismatch in credits. Further, the entire concept of credit matching is going to be very critical in case the vendor does not pay taxes or does not record the transaction properly and where it is not rectified within given time limit, businesses would lose input tax credit. 9 P a g e

10 5. Draft Goods & Services Tax Refund Rules, 20 ( Draft Refund Rules ) The Draft Refund Rules provide for the refund of any tax, interest, penalty, fees or any other amount paid by registered taxable person. For purpose of making the refund claim, the application is to be made online in Form GST RFD-1. However, for refund of excess cash paid in the electronic cash ledger, claim for refund is to be made in returns to be filed in form GSTR-3/4/7. In case of export of goods, refund would be available only after the export manifest or an export report is delivered. In case of supplies made to SEZ unit or the developer or supplies which are considered to be deemed exports, the said unit or the developer or the recipient of the deemed supplies would be entitled to claim refund of the tax paid. This suggests that the supplies to SEZ may not continue to remain exempt under GST regime. Currently, draft GST provisions are silent on the application of GST on supplies made to SEZ or deemed exports. Further, the concept of deemed exports is presently covered only under the Foreign Trade Policy and only applies to central taxes. It is not clear whether the deemed export benefits would continue and would be extended to state taxes. Documents to be submitted in each case Situation Documents to be submitted Order passed by officer / authority / Reference number of the order and copy of the order court passed Export of Goods Statement containing number and date of shipping bills / bills of export, number and date of export invoices Supplies to SEZ / Deemed exports in Statement containing number and date of invoices. Details case of both goods and services of payment proof in case of refund of supply of services. Export of Services Statement containing number and date of invoices and relevant BIRC / FIRC Unutilized input tax credit in case of Statement in Annexure of Form GST RFD-1 containing inverted duty structure number and date of invoice In case of refund amounting to less than Rs. 5 lacs, registered taxable person would be required to furnish declaration to the effect that the incidence of tax and interest [claimed as refund] has not been passed on to any other person. In case where refund amount is Rs. 5 lacs or more, CA certificate in Annex 2 in Form GST RFD-1 is to be furnished. For filing refund of input tax credit, the applicant would also be required to debit its electronic credit ledger 10 P a g e

11 Manner of calculation In case of refund of ITC on account export of goods / services under bond or letter of undertaking, following formula has been prescribed: Refund Amount = (Export turnover of goods + Export turnover of services) X Net ITC Adjusted Total Turnover For the purpose of the above, adjusted total turnover has been defined as value of turnover in a State excluding the value of exempt supplies, during the relevant period. It may be relevant to note that adjusted total turnover speaks about value of turnover in a State. This indicates that businesses would be required to file separate refund application state-wise. The term adjusted total turnover has been defined to mean value of turnover in a State as defined under Section 2(104) of the Model GST Law excluding value of exempted supplies. Further, the term value of turnover in a State has been defined to mean aggregate of value of taxable and non-taxable supplies, exempt supplies and inter-state supplies. It appears that there is a lacuna in the definition of adjusted total turnover as it only excludes exempt supplies but does not exclude non-taxable supplies. Considering that taxable person would be required to reverse credit related to both exempt as well as non-taxable supplies under Section 16 of the Model GST Law, refund of input tax credit claimed would only be related to taxable supplies. Hence, inclusion of turnover related to non-taxable supplies in the denominator appears to be unwarranted. Application forms Form GST RFD-1 GST RFD-2 GST RFD-3 GST RFD-4 GST RFD-5 GST RFD-6 GST RFD-7 Particulars Application for refund Acknowledgement generated for refund claim filed Officer to communicate any deficiencies in GST RFD-3 Grant of Provisional refund officer to make order in GST RFD-4 On examination of application, officer to pass order in GST RFD-5 In case where refund is completely adjusted against any outstanding demand, order for adjustment to be passed in GST RFD-6 In case officer is satisfied that whole or part of the amount claimed as refund is not admissible, order would be passed in GST RFD-7 with reasons to be recorded in writing. The Applicant would be required to file reply within 15 days from the receipt of such notice. On receipt of reply, officer to pass order in form GST RFD-5 either sanctioning or 11 P a g e

12 GST RFD-8 GST RFD-9 GST RFD-10 GST RFD-11 rejecting the refund claim. Opportunity of being heard would be provided before passing of the order Payment advice for sanctioning refund Payment advice for sanctioning refund of interest due and payable Application for certain class of applicants as may be notified In case amount claimed as refund is rejected, the same would be re-credited to the electronic credit ledger by order made in Form GST PMT-2A. 12 P a g e

13 Key Contacts Dinesh Kanabar, CEO Ritesh Kanodia, Partner Niraj Bagri, Partner Srinath S, Associate Partner Our offices Mumbai 1101 & 1102, One Indiabulls Centre, Tower 2B 841, Senapati Bapar Marg, Elphinstone Road (West) Mumbai Tel: Fax: Bengaluru Prestige Terraces 5/1, Union Street Infantry Road Bangalore Tel: Fax: Ahmedabad B3/3rd Floor, Safal Profitaire, Prahladnagar, Corporate Road, Opp. Auda Garden, Ahmedabad Tel: Fax: Delhi 1st Floor, Tower 4B DLF Corporate Park M G Road, Gurgaon, Haryana Tel: Fax: Singapore One Raffles Place, #41-01 Singapore Tel: About Dhruva Advisors LLP Dhruva Advisors offers a wide range of services in the tax and regulatory space to clients in India and around the world We are a cohesive team of tax professionals who are focused on providing our clients with high-quality tax and related services. With strong research and technical skills coupled with extensive experience, we provide well-thought out and strategic solutions to complex problems Our professionals have advised on some of the largest transactions in the world and have handled several of the largest tax controversies in India. Our professionals also have a strong track record of designing and implementing pioneering solutions in several areas of domestic and international tax Dhruva has been recognised as a tier 1 firm in the International Tax Review, World Tax guide 2016 to the World s leading tax firms Dhruva has been recognised as tier 2 firm in the International Tax Review, World Transfer Pricing 2016 to the World s leading transfer pricing firms Dhruva has been awarded Best Newcomer of the Year ASIA by International Tax Review This information contained herein is in summary form and is therefore intended for general guidance only. This publication is not intended to address the circumstances of any particular individual or entity. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. This publication is not a substitute for detailed research and opinion. Before acting on any matters contained herein, reference should be made to subject matter experts and professional judgment needs to be exercised. Dhruva Advisors LLP cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. 13 P a g e