GST THIS WEEK. GST Update No. 02/2017/KMS IN THIS UPDATE. 27 th Feb 5 th Mar, 2017

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1 GST Update No. 02/2017/KMS GST THIS WEEK 27 th Feb 5 th Mar, 2017 IN THIS UPDATE Flow chart on tax treatment on services or goods where Tax has been payable under the earlier law & Service Tax credit distributed by ISD [Sec: 188, 189 & 190 of Revised Model GST Law (MGL)] Graphical presentation showing transfer of unutilized CENVAT credit in case of centralized registration [Sec: 191 of Revised Model GST Law (MGL)] Graphical presentation on allowance of Tax credit on goods lying with agent [Sec: 192 & 193 of Revised Model GST Law (MGL)] Graphical presentation on branch transfer [Sec: 194 of Revised Model GST Law (MGL)] Flow chart on tax treatment on goods sent on approval basis returned on or after the appointed day & deduction if tax source [Sec: 195 & 196 of Revised Model GST Law(MGL)] Flow chart on transitional CENVAT credit reversed due to non-payment of consideration [Sec: 197 of Revised Model GST Law(MGL)] Practical issues Corresponding sections under earlier Model GST Law (MGL) For Private Circulation only Page 1 Jump to Home

2 Tax treatment on services or goods where Tax has been payable under the earlier law Notwithstanding anything contained in Sec: 12, 13 & 14 of The GST Act; in case of supply of service and goods in certain cases where YES Whether the Point of Taxation in respect of said services or goods has been arose before appointed day? NO To the extent of Point of Taxation in respect of those services or goods arose before the appointed day, Tax shall be payable under the earlier law. Where the Point of Taxation in respect of those services or goods do not arose before the appointed day, Tax shall be payable under the GST Act. For Private Circulation only Page 2 Jump to Home

3 Credit distribution of Service Tax by ISD (Only CGST Act) Notwithstanding anything contrary contained in GST Act, credit of Service Tax shall be distributed by ISD as under YES Whether the service has been received prior to the appointed day? NO Whether the invoice has been received prior to the appointed day? NO As the service has been received on or after the appointed day; the credit will be distributed as per the provisions of the GST Act. YES As the service as well as invoice has been received before the appointed day, the credit will be distributed as per the provisions of the GST Act. Even though the invoice relating to such service is received on or after the appointed day, ISD shall be distributed under the GST Act. For Private Circulation only Page 3 Jump to Home

4 Transfer of credit in case of centralized registration under the earlier law (Only CGST Act) PROVISIONS AS PER SEC : 191 Provision for transfer of unutilized CENVAT credit in case of centralized registration Taxable person having centralized registration under the earlier law and has obtained the registration under the GST Act, then such person shall be allowed to take the credit of the CENVAT credit carried forward in the last return for the period ending with the day immediately preceding the appointed day into electronic credit ledger subject to the fulfillment of below conditions. Conditions to be fulfilled Such taxable person has filed valid return under the earlier regime before the appointed day which contains the balance of un-utilized CENVAT credit to be carried forward into GST regime. If the said return has not been filed before the appointed day, then he can file the return for the period ending with the day immediately preceding the appointed day within 3 months of the appointed day, then such credit shall be allowed to the condition that the said return is either an original return or a revised return where credit has been reduced from that claimed earlier. The amount of the credit shall be admissible as ITC under the GST Act. On fulfillment of conditions Taxable person can transfer such credit to any of the registered premise having the same PAN under the GST regime for which the centralized registration was obtained under the earlier law. For Private Circulation only Page 4 Jump to Home

5 Allowance of Tax credit in respect of goods lying with agent (Only SGST Act) Provisions as per Sec: 192 & 193 Provision for allowing credit for the goods lying with agent The agent shall be entitled to take the credit of the tax paid on the goods including capital goods where such goods including capital goods belonging to principal are lying at the premises of the agent on the appointed day subject to the fulfillment of the following conditions. It means the tax paid on inputs where such inputs are used for output goods / capital goods by the principal will be available as ITC to the agent subject to fulfillment of the specified conditions. Under the GST regime agent will charge GST on sale of such goods / capital goods lying with him on the appointed day and where agent is allowed to take the ITC on inputs used by principal for the said goods / capital goods by virtue of the said provision. Conditions to be fulfilled The agent is registered taxable person under the GST Act; Both the principal & agent declare the details of stock of goods / capital goods lying with such agent on the date immediately preceding the appointed day in such form and manner as may be prescribed in this behalf; The invoices for such goods / capital goods had been issued not earlier than 12 months immediately preceding the appointed day; The principal has either reversed or not availed of the input tax credit in respect of the goods or capital goods. For Private Circulation only Page 5 Jump to Home

6 Treatment of Branch Transfer (Only SGST Act) Provisions as per Sec: 194 Treatement of branch transfer Amount of ITC reversed prior to the appointed day due to the branch transfer shall not be admissible as credit of ITC under the GST Act. It means if the taxpayer has reversed the ITC under the earlier regime as per the respective State VAT Act then, in such a case the same reversed ITC shall not be admissible again in any circumstances as ITC under the GST Act. For Private Circulation only Page 6 Jump to Home

7 Tax treatment on goods sent on sale or approval basis (Only SGST Act) Goods sent on sale or approval basis not earlier than 6 months before the appointed day YES Whether the same goods are returned to the seller within 6* months from the appointed day? NO No Tax shall be payable under the GST Act on such supply made by buyer to the seller. Tax shall be payable under the GST Act on such supply made by buyer to the seller. * Such period of 6 months can be extended by the competent authority for a further period not exceeding further 2 months. For Private Circulation only Page 7 Jump to Home

8 Deduction of tax source Sale of goods made by supplier in respect of which tax was required to be deducted at source under the earlier law YES Whether the invoice in respect of such supply has been issued before the appointed day? NO No TDS u/s 46 of The GST Act is required to be deducted; even though payment has been made on or after the appointed day. TDS u/s 46 of The GST Act is required to be deducted; as the payment & invoice both are made on or after the appointed day. For Private Circulation only Page 8 Jump to Home

9 Transitional CENVAT credit reversed due to non-payment of consideration [Only CGST Act] Where the CENVAT credit availed for the input services provided under earlier law has been reversed due to non-payment of the consideration within 3 months YES Whether taxable person has made payment of the consideration within the period of 3 months from the appointed day? NO CENVAT credit reversed earlier due to the nonpayment of Tax can be reclaimed again under the GST Act by applying the provisions of GST law. CENVAT credit reversed earlier due to the nonpayment of Tax can not be reclaimed again under the GST Act; even though payment has been made after 3 months. For Private Circulation only Page 9 Jump to Home

10 Practical Issues Mr. A, a service provider who provides the consulting service. He has received the advance receipt of Rs. 1,00,000 from his client in the month May'17. Assume GST will be effective from 1 st July, Now, he has raised the invoice against the same advance in the month Aug'17. Whether GST will be payable on such invoice or not under the GST regime? Where the point of taxation in respect of service has already been arose in the earlier regime, then one has to apply the provisions of Sec: 188 of the Revised MGL. Here, Mr. A has received the consideration in the month of May'17 i.e. in the earlier regime. According to the provision of current tax Service Tax law one need to discharge Service Tax liability on the advance payment also. It means the Service Tax has already been paid by Mr. A in the month June'17. As per the point of taxation, Mr. A has already made Tax payment and hence he is not liable to pay Tax again under the GST regime by virtue of provisions of Sec: 188 of the Revised MGL. ABC Limited, a works contractor paying the Service Tax and VAT under the composition scheme under the current regime. It receives the advance receipt from the customer for Rs. 50,000/- towards the works contract service in the month May'17. The invoice in respect of the said service has been raised in the month July'17. Whether the GST will be payable at the time of raising the invoice or not? The situation is similar as discussed in the above question. However, the difference is that here ABC Limited has already paid Service Tax on advance receipt received from customer in the month June'17 by considering the point of taxation rules but he has not paid VAT in the month June'17 as the VAT payment is to be paid on advance receipt. As the works contract service involves both service as well as goods. We need to apply both the provisions Sec: 188 & 189 of the Revised MGL. By applying the provisions of Sec: 188 of Revised MGL it seems that GST shall not be payable as the Service Tax has already been paid on the said value of Rs. 50,000/- received from the customer. On the other hand, by applying the provisions of Sec: 189 of the Revised MGL it seems that GST shall be payable as the VAT has not been payable at the time of advance receipt as per the State VAT law. For Private Circulation only Page 10 Jump to Home

11 , In nutshell, the aforesaid both the provisions contradicts with each other and it is also not clear which provision should be applied in the cases where transaction involves both service as well as goods. However, an order of removal of difficulties is expected to be passed to resolve the said issue. Will the provisions of Sec:190 of Revised MGL covers the situation where ISD has received the services after the appointed day? Where the service itself is received after the appointed day then transitional provisions cannot be applied. In such case for distributing the credit ISD is required to follow the provisions stated in Sec: 21 of Revised MGL. Sun Pvt. Ltd. is having the centralized registration under the current regime in Service Tax. It has H.O. situated in Ahmedabad and having the offices in the State Maharashtra, Delhi & Kerala. The H.O. has accumulated CENVAT credit of Rs. 40,000/- till June'17. Assume the GST will be applicable from 1 st July, However, the company has not filed it's Service Tax return for the period ending immediately preceding appointed day. Whether the company can distribute the said transitional credit under GST regime? The specific provision under Sec: 190 in respect of distribution of credit by ISD has been given under Revised MGL. According to the same taxable person having centralized registration under the earlier law and has obtained the registration under the GST Act, then such person shall be allowed to take the credit of the CENVAT credit and distribute the same subject to the condition specified in the law. One of the conditions is that such taxable person has filed valid return under the earlier regime before the appointed day which contains the balance of un-utilized CENVAT credit to be carried forward into GST regime. If the said return has not been filed before the appointed day, then he can file the return for the period ending with the day immediately preceding the appointed day within 3 months of the appointed day, then such credit shall be allowed to the condition that the said return is either an original return or a revised return where credit has been reduced from that claimed earlier. Accordingly, if the company has filed the valid return within 3 months from the appointed day then, it is eligible to distribute the credit accumulated in the ledger. For Private Circulation only Page 11 Jump to Home

12 Mr. X, a service provider provides advertising services. He has availed the service from the hording owner in the month Dec'16 for providing output service. Where he has availed CENVAT credit of tax charged on such input service against the output Service Tax payable for the said month. However, Mr. X is unable to make payment to the service provider till June'17. Hence, he has reversed CENVAT credit pertaining to the said transaction in the return. Now, in the month of Aug'17 he has made the payment to the service provider then, in such case whether he can claim the credit as ITC in the month Aug'17 under GST regime? The said situation is covered under Sec: 197 of the Revised MGL. According to it, if the output service provider makes the payment of the service within 3 months from the appointed day (Assume 1 st July, 2017) then, he can very well avail the credit of the Tax portion involved in the said payment. In the given case, Mr. X has made payment to the service provider in the month Aug'17 i.e. within 3 months from the appointed day. Hence, he is eligible again reclaim the said credit in the month Aug'17 under the GST regime. For Private Circulation only Page 12 Jump to Home

13 Corresponding Sections under Draft GST law dated Provisions under earlier draft law Provisions under present draft law Section Heading Section Heading 188 Taxability of supply of services in 161 Treatment of retention payments certain cases 189 Taxability of supply of goods in certain cases 162 Credit distribution of service tax by ISD 190 Credit distribution of service tax by ISD Provision for transfer of unutilized Cenvat Credit by taxable person having centralized registration under the earlier law 162A Tax paid on goods lying with agents to be allowed as credit 192 Tax paid on goods lying with agents to be allowed as credit 162B Tax paid on capital goods lying with agents to be allowed as credit 193 Tax paid on capital goods lying with agents to be allowed as credit 162C Treatment of branch transfers 194 Treatment of branch transfers 162D Goods sent on approval basis returned 195 Goods sent on approval basis returned on or after the appointed day on or after the appointed day 162E Deduction of tax source 196 Deduction of tax source Transitional provisions for availing Cenvat credit in certain cases Disclaimer: KMS Updates is meant for information purpose only and does not purport to be advice or opinion, legal or otherwise, whatsoever. KMS updates are prepared based on the understanding of the provisions as stood applicable as on date. KMS is not responsible for any error or omission in this update or for any action taken based on its contents. For Private Circulation only Page 13 Jump to Home