from India Tax & Regulatory Services GST Council releases draft amendments to GST Laws for public comments July 10, 2018 In brief The GST Council has released a set of draft amendments in the CGST Act, IGST Act and GST (Compensation to the States) Act for public comments, which are requested to be submitted by 15 July, 2018. The significant amendments proposed and its impact are described in this tax insight. In detail Amendments in definitions Amendments proposed in the CGST Act, 2017 1 2(4) Definition of adjudicating authority to be amended to exclude the National Anti- Profiteering Authority (NPPA). 2 2(102) An explanation to be inserted in definition of services to clarify that services includes facilitating or arranging transactions in securities. 3 7 The definition of supply is proposed to be amended to remove the deemed inclusion of activities mentioned in Schedule II of the definition of supply. Further, a new sub-section (1A) has been inserted to clarify that specified transactions, when constituting a supply, shall be treated as supply of goods or services as specified in Schedule II. This would mean that any orders passed by the NPPA will not be statutorily appealable to the appellate authority. This appears to be clarificatory. This amendment will cure the anomaly that in some cases, even though an activity mentioned in Schedule II did not amount to supply, due to deemed inclusion of such activities in definition of supply, it attracted tax. This defeated the objective of Schedule II, which was to give guidance on whether specified activities were to be treated as supply of goods or services. www.pwc.in
4 Schedule I, entry 4 The entry is proposed to be amended to include import of services from a related person or from any of his other establishments outside India without consideration even by a non-taxable person in the course of business as supply without consideration. Due to this amendment, import of services without consideration from a related person in the course of business by all persons, irrespective of whether such entities pay GST on their outward supply, will attract GST. 5 Schedule III The following activities are proposed to be added to the list of activities which do not amount to supply of goods or services: Supply of goods from a place in nontaxable territory to another place in nontaxable territory without entry in taxable territory. Supply of warehoused goods to any person before clearance for home consumption. Supply of goods by endorsement of documents of title before clearance from home consumption. 6 9(4) GST liability under reverse charge on supplies received from unregistered persons is now proposed to be restricted to only specified class of recipients, instead of all recipients. 7 10 The upper limit of turnover for being eligible for composition scheme has been increased to INR 15 million from INR 10 million. The persons opting for composition scheme will also be allowed to supply services up to 10% of their turnover in preceding financial year in a State or INR 0.5 million, whichever is higher. The activities of merchant trade transactions where the goods do not enter India and are directly dispatched to customer outside India, sale of goods stored in customs bonded warehouse and high sea sales transactions are specified as activities which do not amount to supply of goods, resolving the ambiguity of treatment of such transactions. This proposal also links up with recent changes to taxability and valuation of in-bond sales. This will reduce procedural compliance for significant number of assessees. However, similar amendment is not proposed in section 5(4) of IGST Act. These amendments are aimed to expand the ambit of composition scheme to cover more small businesses, which have limited service revenues. 8 16(2) second proviso It is proposed that in case of reversal of credit due to non-payment of consideration to a supplier within one hundred and eighty days from the date of invoice, no interest will be payable. This is a welcome change and will reduce burden for taxpayers. 9 17(3) The value of exempt supply for the purpose of reversal of input tax credit (ITC) will exclude the activities/ transactions mentioned in Schedule III, i.e. activities not amounting to supply (except sale of land and sale of building). 10 17(5) The broad based restriction on claim of credit of tax paid on motor vehicles and conveyances is proposed to be diluted to restrict credit only on motor vehicles used for transport of passengers having a maximum seating capacity of thirteen persons, vessels and aircrafts. This will allow the assessees to claim ITC relatable to these transactions, which do not amount to supply by virtue of Schedule III. (e.g. merchant trade, high seas and inbond sales, actionable claims etc.) The entitlement to ITC on vehicles is proposed to be relaxed as previously all type of motor vehicles were made ineligible for credit. This relaxation results in operating vehicles such as dumpers, trucks, fork lifts etc. becoming eligible for credits. Further, credits of GST paid on insurance and PwC Page 2
The credit on vehicles etc. is also proposed to be allowed when they are used to transport money for or by a banking company or a financial institution. ITC on general insurance, servicing, repair and maintenance of such vehicles etc., when ineligible for credit, is also proposed to be barred. ITC will be eligible when any provision of goods or services or both are to be provided by an employer to an employee under any law for the time being in force. repairs, and maintenance of vehicles etc., which are ineligible for credit are also proposed to be restricted. 11 24(x) The mandatory registration requirement for electronic commerce operator is restricted to only such electronic commerce operators who are required to collect tax at source under section 52. 12 25(2) An option is proposed to be given to every person to obtain separate registration for each place of business in a State, instead of a single registration for all the places in a State, (even if operating under a single business vertical). Further, provisions for individual registration of multiple SEZ units in a State have also been proposed to be introduced. This will relax compliance requirements for smaller electronic commerce operators. This could benefit certain businesses; however, entities operating multiple SEZ units in a State may be impacted. 13 34(1) and 34(3) The present provision of issuing one credit/ debit note for each invoice is proposed to be amended to allow issuance of a credit/ debit note against multiple invoices. This will be a major relaxation for industries such as FMCG, pharma etc., where a significant/ multiple levels of credit notes/ discounts are issued. 14 39(9) The section proposes to now allow an amendment of a previous return to rectify the errors or omissions, while also maintaining the current provision of rectifying the error in the return for the period in which error is identified. 15 43A This is a new section proposed to be introduced to enable new return filing procedure. The procedural aspects of this change will need examination. While the procedural rules will need to be examined, this is an enabler for the simplified return filing mechanism and claiming ITC, which is a priority of the Government. 16 Explanation 2(e ) of section 54 The relevant date from which the period of limitation for filing refund claim of unutilised ITC in cases of inverted tax structure is proposed to be computed from the due date of filing return, instead of, from the end of the financial year. This will require businesses to be more upto-date with their refund claims. 17 54(8)(a) The claim of refund of tax paid on supplies made to SEZ developer/ unit or of It is proposed to allow ITC to SEZ developers/ units and to allow the supplier PwC Page 3
accumulated credit due to zero rated supplies made to the SEZ unit will be subjected to unjust enrichment. in the domestic tariff area to recover the tax from SEZ etc. Consequently, the provisions for refund claim made by the supplier to the SEZ unit are amended to prescribe test for unjust enrichment in such cases. 18 Explanation 2(c )(i) to section 54 The relevant date from which the period of limitation for filing refund claim of tax paid on services exported or on inputs/ input services relating to such services is proposed to be computed from receipt of consideration in convertible foreign exchange or in Indian Rupees where permitted by the Reserve Bank of India (RBI) instead of earlier reference to only the receipt in convertible foreign exchange. This amendment will allow to claim refund in case of receipt in Indian Rupees as permitted by RBI, especially in case of exports to Nepal and Bhutan, where the consideration is received in Indian Rupees as per the RBI regulations. A similar amendment is also proposed in section 2(6)(iv) of the IGST Act as well. 19 107(6) The amount of pre-deposit for filing an appeal before the Appellate authority to be capped at INR 250 million. 20 112(8) The amount of pre-deposit for filing an appeal before the Appellate Tribunal to be capped at INR 500 million. 21 140(1) Provisions for transitional credit are proposed to be amended to deny credit of accumulated balances of Education Cess, Secondary and Higher Education Cess, Krishi Kalyan Cess, Additional Duties of Excise (Textile and Textile articles) etc. Only the accumulated credit balance of the duties/ taxes specifically mentioned in the explanations will be allowed to be carried forward. 22 143(1) The Commissioner is given powers to extend the time limit for bringing back or supply the inputs/ capital goods sent to the job worker for another period of one year and two years for inputs and capital goods respectively. This is a welcome gesture as pre-deposit of 10% of high value disputes was onerous. This is a welcome gesture as pre-deposit of 20% of high value disputes was onerous. This will potentially impact a large number of claims of transitional credit. This is a welcome relaxation. Amendments proposed in the IGST Act, 2017 1 12(8) The place of supply of services of transportation of goods, including by mail or courier, where such goods are to be transported to a place outside India, the place of supply is proposed to be the destination outside India. This amendment is aimed to remove GST on exports of goods to a place outside India. However, it needs to be assessed as to whether this proposed amendment will meet its objective. 2 Proviso to section 13(3)(a) Place of supply for any services of treatment or process on goods temporarily imported in India and exported after such process is proposed to be the location of the recipient outside India. The services of jobwork on goods imported in India specifically for that purpose can be treated as exports of services. PwC Page 4
The takeaways It is a welcome step to invite public comments for the proposed amendments in the GST law. The amendments such as amendment in definition of supply, widening of credits on vehicles and restricting reverse charge liability for procurements from unregistered vendors to specified set of persons are welcome. The industry will be disappointed on provisions relating to restriction on transfer of credit balance. The proposed amendments do not include some of the amendments which were already highlighted to the GST Council such as the taxability of services deemed to be provided by the branch offices to foreign offices/ parent entity. It would be interesting to see which provisions are proposed to be given retrospective effect and which come into force prospectively. Let s talk For a deeper discussion of how this issue might affect your business, please contact your local PwC advisor PwC Page 2
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