VAT CONCEPT AND ITS APPLICATION IN GST

Transcription

1 CONTENTS DIVISION 1 INPUT TAX CREDIT 1 VAT CONCEPT AND ITS APPLICATION IN GST 1.1 Background of VAT Basic Concept of VAT VAT to avoid the cascading effect Input Tax credit system to implement concept of VAT VAT is consumption based tax Zero rated and exempt transactions in GST Highlights of scheme of GST Input Tax Credit (ITC) Entire Input tax Credit available even if part of input goes in by-product or waste Credit of tax paid on capital goods Instant credit One to one correlation not required Broad provisions regarding availability of input tax credit 10 I-5

2 CONTENTS I-6 2 INPUT TAX CREDIT (ITC) 2.1 ITC is core provision of GST Input Tax Manner of taking input tax credit Documentary requirements and conditions for claiming input tax credit Input tax credit cannot be taken after one year from date of invoice or filing of annual return No Input tax credit if GST was paid by supplier on advance paid to him Requirements for availing Input Tax Credit Reversal of input tax credit if payment not made to supplier within 180 days Procedure for reversal of input tax credit in case of non-payment of consideration Supply of goods and services ineligible for ITC - Negative list - Blocked credit Meaning of plant and machinery Meaning of works contract Meaning of motor vehicle Input Tax Credit of capital goods Meaning of capital goods for purpose of ITC Input tax credit of tax not allowed if depreciation claimed on tax component Ineligibility of ITC on pipelines and telecommunication tower Removal of capital goods after use Merger, amalgamation or sale of business Procedure for transfer of credit on sale, merger, amalgamation, lease or transfer of a business Input Tax Credit when taxable person becomes eligible for first time Credit of input tax at the time of registration Input tax credit when person opts out of composition scheme 26

3 I-7 CONTENTS Input tax credit on stock when exemption on goods or services withdrawn Reversal of input tax credit if goods become exempt or taxable person switches to composition scheme Reversal of ITC if registration is cancelled Reversal of input tax credit if goods or services become wholly exempt or GST registration cancelled Recovery of ITC wrongly taken 29 3 INPUT TAX CREDIT WHEN EXEMPTED AS WELL AS TAXABLE SUPPLIES MADE 3.1 Proportionate ITC when party used for business or taxable supplies Calculation of value of exempted supply Special provisions in respect of Banks, FI and NBFC Procedure to claim of credit by a banking company or a financial institution Determination of input tax credit when partly used for taxable supply and partly for exempt supply Final calculations at end of financial year of eligible ITC Determination of input tax credit in respect of capital goods used partly for taxable supply and partly for exempt supply Mode of calculations of ITC of tax paid on common capital goods Reversal of Input Tax Credit means ITC not taken 40 4 INPUT SERVICE DISTRIBUTOR (ISD) 4.1 Purpose of Input Service Distributor Manner of distribution of credit by Input Service Distributor Meaning of relevant period 43

4 CONTENTS I Meaning of recipient of credit Meaning of turnover Manner of recovery of credit distributed in excess Tax Invoice by Input Service Distributor Monthly return by ISD Procedure for distribution of input tax credit by Input Service Distributor 45 5 UTILISATION OF INPUT TAX CREDIT 5.1 ITC for payment of output tax Claim of input tax credit and provisional acceptance Matching, reversal and reclaim of input tax credit of invoice and debit notes Final acceptance of input tax credit and its communication in form GST MIS-1 in respect of invoice or debit note Utilisation of ITC in electronic credit ledger Can CGST and SGST paid in one State be utilized for payment of CGST or IGST in another State? 50 DIVISION 2 HOW TO TAKE CREDIT ON CLOSING STOCK & SWITCH OVER TO GST 6 SWITCH OVER TO GST 6.1 Background of GST What is Goods and Services Tax? Broad definition of service Dual GST for supply of goods and services within State Union Territory Goods and Services Tax (UTGST) 58

5 I-9 CONTENTS IGST for inter-state transactions GST is consumption based tax based on VAT principle Input Tax Credit Central Excise duty on petroleum and tobacco products Sales tax on petroleum products and alcoholic liquor within State Tax on entertainment only by Municipalities, Panchayat, Regional council and District council Relief to very small taxable persons GST payable once registered even if turnover less than ` 20/10 lakhs Rates of GST Switch over to GST from earlier tax regime Transitory provisions relating to stock with traders on appointed day i.e Service tax return for quarter ending GST Compensation Cess on goods and services Abolition of other duties and taxes Taxation powers of district council Present Area based exemptions Information Technology Network Huge data processing required GST Suvidha Providers Game Changers in GST Taxes will move with goods Distribution network will be simpler Uniform GST Law all over India Avoidance of dual control Changes from earlier regime to be taken note of GST is on supply and not on sale or manufacture Payment of GST on advances received Reversal of input tax credit if payment not made to supplier within 180 days 72

6 CONTENTS I Reverse charge in some cases Composition Scheme only if all purchases are from registered persons Valuation provisions to be taken note of Post supply discounts and price reductions after supply not eligible for deduction from value Disallowances of Input Tax Credit (ITC) CGST/SGST paid when IGST was payable and vice versa Input Tax Credit after Invoice matching and after payment of tax by supplier e-way Bill for transport of goods of value exceeding ` 50, Anti-profiteering provisions Accounting challenges System is master - Not human being Reply to queries Some important and useful websites 77 7 REGISTRATION RELATED ISSUES DURING TRANSITION 7.1 Transition of persons registered under excise, State VAT or service tax Procedure for migration of persons registered under the existing law Application to convert provisional registration into permanent registration Deemed final registration if no query within 15 days Apply for cancellation of GST registration if not liable to be registered under GST Fresh Registration under GST Registration only from where taxable supply is made i.e. where he has fixed establishment and not where taxable supply is made 82

7 I-11 CONTENTS 7.3 Persons who not required to register under GST Person not liable to pay GST need not register Agriculturist need not register Persons providing services where service recipient is liable to pay GST under reverse charge need not register under GST Persons requiring registration without threshold limit of ` 20/10 lakhs Provision of compulsory registration does not apply to persons not required to be registered as per section Requirements and procedure for registration Application for registration Validation of details and temporary number Submission of application after verification of mobile and address Documents to be attached to application Verification of the application and approval Issue of registration certificate and GSTIN State code and TIN of each State Physical verification of business premises in certain cases Display of registration certificate and GSTIN on the name board Taxable persons having multiple business verticals Procedure for separate registration for multiple business verticals within a State or a Union territory Voluntary registration Issue or rejection of Registration within prescribed period Amendment of registration Cancellation of GST registration Application for cancellation of registration Other provisions relating to cancellation of registration under GST 98

8 CONTENTS I-12 8 INPUT TAX CREDIT WHILE SWITCHING OVER FROM EXISTING TAX STRUCTURE TO GST 8.1 Eligible Cenvat and VAT Credit carried forward Meaning of existing law Conditions for carry forward of central duties as contained in return filed on Conditions for carry forward of state taxes as contained in return filed on Procedure to be followed in respect of inputs Eligibility of central duties and VAT paid on capital goods which was not carried forward Procedure to be followed in respect of capital goods Eligible duties and taxes on goods which were held in stock on , if person was not eligible to take Cenvat credit earlier Is it required to pass on the credit to buyer by reducing the price? Meaning of Cenvat, first stage dealer, second stage dealer Eligible taxes on goods which were held in stock on , if person was not registered under State VAT Deemed Input tax credit of tax on stock if invoice of supplier showing tax paid is not available Conditions for deemed credit Are textile products eligible for deemed credit Credit if taxable person was manufacturing exempted as well as taxable goods and providing exempted or taxable services Credit if taxable person was engaged in sale of exempted as well as taxable goods or tax free goods Credit of duty and tax paid inputs or service tax paid on input services received after but duty or tax was paid on or before

9 I-13 CONTENTS 8.8 Registered person who was paying tax/duty at fixed rate or paying fixed amount Suppliers of works contract service can take ITC of excise duty on inputs Credit Transfer Document TRANSITORY ISSUES RELATING TO SERVICE TAX 9.1 Payment of service tax when due after GST payable when service is deemed to be provided after Credit of service tax paid on input services received after but service tax was paid on or before Registered person who was paying tax/duty at fixed rate or paying fixed amount Suppliers of works contract service can take ITC of excise duty on inputs Distribution of credit by Input service distributor of service invoices received after GST Taxable persons having centralized registration under service tax Cenvat credit of service tax if payment was reversed due to non-payment Provision when supply was partly made before and partly after VAT and service tax on composite works contract Refund of service tax on account of service not provided if tax was paid on advance prior to OTHER TRANSITORY PROVISIONS 10.1 Inputs, semi-finished goods and finished goods sent outside for job work or to agent before but received after Inputs sent outside on approval basis as on

10 CONTENTS I No TDS under State VAT law if sale was made prior to Transactions occurring during transition period Provisions relating to adjudication, appeals, revisions, references relating to excise, service tax and Act Contracts entered prior to but supply made after Transitory provisions relating to job work and goods sent for testing before Relaxation in return filing for July and August COMPOSITION SCHEME IN GST 11.1 Relief to very small taxable persons Relief to small and medium size taxable persons Who is eligible for the composition scheme Rates under composition scheme Who is manufacturer Who is eligible for composition scheme Manufacturers who are not eligible for composition scheme Conditions and restrictions for composition levy as specified in rules Reverse charge if procurement of supply from unregistered persons Bill of Supply to be issued and not tax invoice Procedure for exercising option to avail composition scheme Submission of stock statement by persons opting for scheme on Intimation while applying for registration is sufficient from fresh registrations Intimation prior to commencement of financial year if person intends to switch to composition scheme 135

11 I-15 CONTENTS Intimation applies to all places of businesses of the registered person Effective date for composition levy Validity of composition levy opted by registered person Withdrawal from scheme of composition levy Proper Officer can cancel option to registered person Penalty if tax paid under composition scheme though not eligible Switching from composition scheme to normal scheme of payment of tax Switch over from normal scheme to composition scheme and vice versa Quarterly Return and Annual Return Disadvantages of composition scheme ANTI-PROFITEERING MEASURE 12.1 Background Procedure to regulate Anti-Profiteering 143