MODEL GST LAW Decoding The Regulation. Khandhar Mehta & Shah

MODEL GST LAW Decoding The Regulation Khandhar Mehta & Shah 1

CONTENTS BASICS OF GST LEVY IN GST REGIME TIME AND PLACE OF SUPPLY GST VALUATION RULES INPUT TAX CREDIT (ITC) TAX ADMINISTRATION SECTOR-SPECIFIC IMPACT 2

BASICS OF GST 3

GST - MEANING GST is stage wise destination based consumption tax. Broad based and a single comprehensive tax levied on goods and services consumed in an economy. Levied and collected on value addition at each stage of sale or purchase of goods or supply of services based on input credit method but without state boundaries. Uniform single tax across the supply chain. Improvement in international cost competitiveness of indigenous goods and services. Enhancement in efficiency in manufacture and distribution due to economies of scale. GST encourages an unbiased tax structure that is neutral to business processes, business models, organization structure, product substitutes and geographical locations. The prices of commodities are expected to come down in the long run as dealers pass on the benefits of reduced tax incidence to consumers by slashing the prices of goods. 4

DUAL GST : BASIC PROPOSED STRUCTURE Excise Duty Manufacturing of Goods VAT / CST Sale of Goods Service Tax Provision of Services Intra-state Supply of Goods and Services Central GST State GST Inter-state Supply of Goods and Services IGST 1% Additional Tax on Supply of Goods Imports Basic Customs Duty IGST (in place of CVD and SAD) Exports Zero Rated 5

PROBABLE RATE STRUCTURE IN GST SGST (+) CGST Total Rate % Zero Rated Goods and Services Goods and Services of National Importance viz. Defense etc. Basic Education, Healthcare, Agriculture related, Public Transport etc. Export of Goods and Services, Goods and Services provided to SEZ, UN and Foreign Diplomatic Mission 1% to 2% Gold and Silver ornaments, precious and semi-precious stones 18% Normal GST on all goods and services (distributed in CGST and SGST) Rates without restrictions Will be brought in GST at a later Stage Out of GST Tobacco, Cigarettes, Lottery tickets, betting and gambling [SIN Goods and SIN Services] Petroleum and Petroleum products Alcoholic Liquor for Human Consumption 6

ROAD MAP TO GST Winter Session 2015 CGST Law was to be passed in Upper House of Parliament and State GST was to be passed in States Report of Joint Committee on GST Registration, Refund & Payment process was issued in October 2015 Draft Model GST law published for public comment in June 16 Monsoon Session July 16 GST Law to be introduced and Model State GST Law April 1, 2017- Anticipated Date of Implementation of GST Time available for Industry for GST preparation July 2016 to March 2017 7

CHALLENGES IN CURRENT INDIRECT TAX STRUCTURE Multiple levies & Compliances at State and Centre Levels Disputes of Classification, Valuation & Credit Eligibility Overlapping of tax in various transactions CHALLENGES Ineligibility of ITC for SPs & CENVAT for Traders Complex Laws on movement of Goods Form C,F Cascading of Taxes 8

CENTRAL LEVIES STATE LEVIES Excise Duty State VAT Service Tax Entry/ Purchase Tax GST CVD / SAD Octroi / LBT Central Sales Tax Luxury/ Entertainment Tax Customs Duty Customs Duty Lottery, Betting & Gambling Tax Lottery, Betting & Gambling Tax 9

GST NETWORK GSTN SPV FORMATION ROLES & RESPONSIBILITY Special Purpose Vehicle (GSTN-SPV) has been set up to create enabling environment for smooth introduction of GST GSTN-SPV will provide IT infrastructure and services to various stakeholders including the Centre and the States Strategic control over GSTN-SPV has been ensured with the Government due to sensitivity of role of GSTN-SPV and the information which would be available with it GSTN-SPV has been incorporated as a not-forprofit, non-government, private limited company with 49% equity held by the Government and 51% equity held by the non- Government institutions Provide common PAN-based registration Enable returns filing and payments processing for all States on a shared platform Ensure integration of the common GST Portal with the existing tax administration systems of the Central / State Governments and other stake holders Build efficient and convenient interfaces with tax payers to increase tax compliance Carry out research, study best practices and provide training to the stakeholders 10

STAKEHOLDERS OF GSTN STAKEHOLDERS WORKFLOW State Tax Authorities Registration Banks Central Tax Authorities Appeals Returns GSTN GSTN Facilitation Agencies SME Taxpayers Audits GST Payment Corporate Taxpayers Refunds 11

LEGISLATIONS TO BE REPEALED Medicinal and Toiletries Act The Luxury Tax Act The Entertainment Tax Act Chapter V of Finance Act The Entry Tax Act GST 12

LEVY IN GST REGIME 13

MEANING AND SCOPE OF SUPPLY Supply includes For consideration & for business Whether or not for consideration or business Supply without consideration Sale Barter Transfer Exchange License Rental Lease Disposal Importation of service Permanent transfer/disposal of business assets Temporary application of business assets to a private or non-business use Services put to a private or non-business use Assets retained after deregistration Supply of goods and/ or services by a taxable person to another taxable or non-taxable person in course of business 14

GIST OF SCHEDULE II GOODS VS. SERVICE Service Transfer of goods without transfer in title thereof Transfer of business assets for private use with or without consideration Lease, tenancy, license to occupy land Lease or letting out of commercial or residential building Treatment or process which is applied to another person s goods Declared list of service Goods Transfer in title in goods Supply of goods by unincorporated association of body to their members for consideration Transfer of business assets except transfer made for the private use with or without consideration Where a person, acting as an agent, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply. 15

GST SUPPLY CHAIN LAY OUT Outside India India Gujarat OGS Overseas Supplier Distributor Sale CGST + SGST Distributor Warehouse CGST + SGST Sale Supplier No Tax Trf in Gujarat Transfer IGST Warehouse Purchase Import BCD - Cost IGST - Credit CGST + SGST Purchase IGST Supplier Overseas Customer Export (Zero Rated) Factory 16

TIME & PLACE OF SUPPLY OF GOODS & SERVICES 17

TIME OF SUPPLY OF GOODS Normal Supply Earliest of : Date of removal of goods Date on which goods made available to recipient Date of issue of invoice /receipt of payment Date on which receipt is shown by recipient in his books Continuous supply Date of expiry of successive payment / statement If no successive account then earliest of : Date of issue of invoice Date of receipt of payment Reverse charge Earliest of : Date of receipt of goods Date of payment Date of receipt of invoice Date of debit in books of accounts Goods sent on approval Earliest of : Time of supply when it is known 6 months from date of removal 18

TIME OF SUPPLY OF SERVICES Normal Supply Invoice within time Earlier of issue of invoice or receipt of payment Invoice not within time Earlier of completion of service or receipt of payment Other than above Date of receipt in books of recipient Continuous supply Due date of payment is ascertainable - Date on which payment is liable to made irrespective of invoice or payment Due date is not ascertainable- Earlier of payment or invoice Payment linked to completion of event - Time of completion Reverse charge Earliest of : Date of receipt of service Date of payment Date of receipt of invoice Date of debit in books of accounts Others Date of filing of return; or Date on which CGST / SGST is paid 19

PLACE OF SUPPLY OF GOODS Supply on direction of Agent Supply on Board Conveyance Place where movement of goods terminate Location of such agent Location of goods at time of delivery to recipient Location at which goods are taken on board As per law of Parliament based on Council s suggestion Movement of goods Supply without movement Others 20

PLACE OF SUPPLY OF SERVICES Particulars Place of supply General Provision Supply to Registered Person - Location of such person Supply to any other person - Location of recipient of services where the address is on record; and in other cases location of supplier of service Immovable property Location of such property Restaurant, personal grooming, fitness etc. Training service, Transportation of goods including mail & courier Admission to a cultural, sporting event etc. Organization of a cultural, sporting event etc. Goods Transportation Service Location where the services are performed Where supplied to a registered person, location of such person Any other person, location where services are performed Location where event is actually held Supply to Registered Person - Location of such person Supply to any other person - Location where event is held Supply to Registered Person - Location of such person Supply to any other person - Location where goods are handed over for their transportation 21

PLACE OF SUPPLY OF SERVICES Cont Particulars Passenger Transportation Service Services provided on board a conveyance Telecommunication services, including data transfer, broadcasting, DTH Banking & other financial services Place of supply Supplied to Registered Person - Location of such person Supply to any other person - Location from where the passenger embarks on the conveyance Location of first scheduled point of departure of that conveyance Location where the telecommunication line, leased circuit or cable connection or dish antenna is installed For mobile connection for telecommunication and internet services: Post-paid basis - Location of billing address of the recipient Pre-paid basis through a voucher - Location where such pre-payment is received / vouchers are sold Account linked services - Location of recipient Non account linked services - Location of supplier Insurance Services Supplied to Registered Person - Location of such person Supply to any other person - Location of the recipient of services on record of supplier 22

VALUATION RULES 23

VALUATION OF SUPPLY Value of supply Transaction Value, subject to Unrelated Parties Price is sole consideration Transaction Value Shall Include Amount paid by recipient instead of supplier and not included in price Value of goods / services supplied by the recipient free of charge or at reduced cost Royalties and License fees related to and as a condition to supply Taxes and duties other than GST Incidental costs/ expenses (such as commission, packing, royalties etc.) Subsidies linked to the supply Reimbursable expenses incurred on behalf of the supplier Discount or incentive allowed after the supply Shall not Include Post supply discount known before supply and linked to invoices Any discount allowed before or at the time of supply as recorded in invoice 24

VALUATION OF SUPPLY Transaction value accepted in following scenarios: Related party transaction where price not influenced by relationship Goods transferred from one place of business to another Principal to an agent or vice versa Value to be determined by proceeding sequentially through rules 4 to 6 Rule 4 Value by comparison Goods / services of like kind, quality and supplied at the same time Adjustment by proper officer Rule 5 Computed value method Cost + charges for design or brand + profit and general expenses Rule 6 Residual method Value determined using reasonable means Rule 7 Prescribes the mechanism for rejection of declared value Rule 8 Valuation in certain cases Pure agent of service recipient consistent with service tax legislation Money changer 25

INPUT TAX CREDIT (ITC) 26

CASCADING OF TAX - PRESENT TAX STRUCTURE Cascading Impact Burden of Tax on Tax Non availability of VAT credit against Service Tax / Excise liability and vice-versa Non availability of CST credit against any liability Input CENVAT (Service Tax + Excise Duty) (Service Tax + Excise Duty) Liability Input Tax Credit of VAT VAT Liability Input CST Always a COST CST Liability Credit available Credit not available 27

AVAILABILITY OF CENVAT CREDIT - GST To be Setoff in the same order Credit of CGST Credit of SGST Credit of IGST 1 CGST Liability SGST Liability IGST Liability 2 IGST Liability IGST Liability CGST Liability 3 X X SGST Liability Central GST Credit Central GST Liability State GST Credit State GST Liability IGST Credit IGST Liability Credit available Credit not available 28

INPUT TAX CREDIT Time limit Credit in respect of any invoice pertaining to a financial year cannot be taken after Filing of return for the month of September following the end of financial year to which such invoice pertains, or; Filing of the relevant annual return, whichever is earlier Capital Goods Credit not admissible on such tax component of the cost of capital goods, for which depreciation has been claimed under the Income Tax Act, 1961. In case of supply of capital goods on which input tax credit has been taken, payment is required to be made for an amount equal to input tax credit reduced by percentage as may be specified, or; tax on the transaction value of such capital goods, whichever is higher 29

EXCLUSIONS IN ITC Exclusions Motor Vehicle Goods / Service Immovable Property Personal use of Employee Taxed under Composition Levy Construction Service Private or Personal Use Works Contract 30

ITC IN RESPECT OF STOCK Person Eligible Point in Time Entitlement of Credit of input tax in respect of input held in stock and Inputs contained in Semi Finished or Finished Goods Person who has applied for registration within 30 days from the date he become liable and has been granted certificate of registration Person who has taken Voluntary Registration u/s. 19(3) of GST Act Registered Taxable person ceases to pay tax u/s. 8 i.e. Composition Levy On the day immediately preceding the date from which he becomes liable to pay tax On the day Immediately preceding the date of registration On the day immediately preceding the date from which he becomes liable to pay tax u/s. 7 31

SWITCH OVER PROVISIONS Registered Taxable person availing benefits of Input Tax Credit (ITC) Switches over as a taxable person paying tax u/s. 8 i.e. Composition levy Goods / Services supplied by him become exempt absolutely u/s. 10 1. He shall pay an amount equal 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 immediately preceding the date of such switch over or date of exemption. 2. Balance of Input tax credit, if any, lying in electronic credit ledger shall be lapsed. 32

REVERSAL OF ITC ITC on Goods / Services Partly used for Business Partly used for other purpose Partly used for taxable supply Partly used for nontaxable supply ITC attributable to business purposes will be eligible ITC attributable to taxable supply will be eligible Taxable supply shall include zero rated supply but excludes exempted supply 33

GST ELECTRONIC CREDIT ALLOWED ON SUPPLY TRANSACTIONS GSTN Dealer A Supply along with Invoice Dealer B Cash Flow Credit Flow 34

TAX ADMINISTRATION 35

REGISTRATION, PAYMENT & REFUND Registration State wise, Business vertical wise and Voluntary Registration options are available. Concept of ISD continue. Single threshold limit for goods and services. i.e. Rs. 9 Lakhs for normal category and Rs. 4 Lakhs for Northern Eastern State incl. Sikkim. Certain persons required to take compulsory registration. Such as Inter state supplier, Casual dealer, Person required to pay tax under RCM, Person paying TDS, Person acting agent, ISD, e-commerce operator, Aggregator, Other persons to be notified by Government. Payment Single threshold limit for goods and services. i.e. Rs. 10 Lakhs for normal category and Rs. 5 Lakhs for Northern Eastern State including Sikkim. Three modes of payment of tax under GST regime are proposed i.e. through internet banking / credit or debit card, Over the Counter payment (upto Rs. 10,000 per challan) and payments through NEFT/RTGS. The input tax credit as self-assessed in the return of a taxable person shall be credited to his electronic credit ledger to be maintained in the manner as may be prescribed. 36

REGISTRATION, PAYMENT & REFUND Refund Refund claim is required to be filed within 2 years from relevant date. Refund order to be passed within 90 days from the date of receipt of application. 80% refund can be released provisionally and balance 20% after verification. For refund application < Rs. 5 Lakhs only declaration & proof for incidence of tax is required. Refund claim available in case of Export Accumulated credit due to inverted duty structure Deemed Export 37

RETURNS Types of Return Form Period for filing Return Outward supplier GSTR -1 10 th of next month Inward supplier GSTR-2 15 th of next month All assessees except specified GSTR-3 20 th of next month Person paying TDS GSTR-7 10 th of next month ISD GSTR-6 13 th of next month Composition Dealer GSTR-4 18 th of next month following end of quarter Annual Return GSTR-8 31 st December following F.Y. Final Return - 3 months from date of cancellation or order of cancellation whichever is later 38

GOODS AND SERVICE TAX APPELLATE TRIBUNAL ( GSTAT ) One branch for each state i.e. 29 GST Appellate Tribunal GSTAT shall comprise of following members: GSTAT Member (Judicial) Member (Technical CGST) Member (Technical SGST) 39

TRANSITIONAL PROVISIONS 40

MIGRATION OF EXISTING REGISTERED TAX PAYERS Issuance of Provisional Certificate of Registration (RC) Validity of RC for 6 months or extended period Furnish information as may be prescribed Final RC to be issued if information found adequate Cancellation of provisional RC on failure to submit information 41

CARRY FORWARD OF CENVAT CREDIT / ITC Amount of CENVAT Credit / ITC to be allowed to registered taxable person under GST Amount of eligible credit carried forward as per earlier law in return filed for the period ending immediately prior to appointed day Such CENVAT credit is eligible for utilizing credit against CGST / SGST as the case may be Amount of un-availed* CENVAT credit of Capital goods to be allowed to registered taxable person under GST Un-availed CENVAT credit not carried forward in return filed for the period ending immediately prior to appointed day under earlier law Such amount should also be eligible for CENVAT Credit under CGST / SGST *Un-availed amount of CENVAT credit in respect of Capital goods = Aggregate amount of CENVAT Credit (-) Credit already availed in respect of capital goods in earlier return 42

ELIGIBILITY OF CENVAT CREDIT / ITC FOR INPUTS IN STOCK Category of Persons Eligible Duties & Taxes Conditions Registered taxable person under GST who : Was not liable to register under earlier law Is engaged in manufacturing of exempt goods under earlier law Has availed benefit of composition scheme under earlier law Taxes in respect of: inputs held in stock on appointed date inputs contained in semifinished or finished goods held in stock on appointed date Intended to be used for making taxable supplies Not availed CENVAT credit under earlier law due to above mentioned situations Not paying tax under composition scheme in GST regime Eligible CENVAT credit under GST regime also Possession of invoice issued which is not earlier than twelve months immediately preceding appointed day. 43

ELIGIBLE DUTIES AND TAXES TO BE CARRIED FORWARD Excise Duty Service Tax SPECIAL ADDITONAL DUTY (SAD) Additional Excise Duty on Textile and Textile Articles Additional Excise Duty on Goods of Special Importance National Calamity Contingent Duty COUNTER- VEILING DUTY (CVD) Whether Krishi Kalyan Cess (KKC) to be carried forward in GST regime? 44

EXEMPTED OR DUTY PAID GOODS RETURNED AFTER APPOINTED DATE Exempt goods / Duty paid goods removed/sold under earlier law within 6 month prior to appointed day Returned within 6 months from appointed day to any place of business Not returned within 6 months of appointed day to any place of business No tax payable under GST Law Tax payable by person returning the goods if such goods are liable to tax under GST 45

GOODS SENT ON JOBWORK RECEIVED ON OR AFTER APPOINTED DATE Particulars Input Semi Finished Goods Finished Goods Type Inputs received in factory / place of business had been removed/dispatched as such or post partial process Semi finished goods had been removed from factory / dispatched from place of business Excisable goods manufactured in a factory / any goods dispatched from place of business Process to be done prior to the appointed day Further processing, testing, repair, reconditioning or any other purpose For carrying out certain manufacturing processes Carrying out tests or any other process not amounting to manufacture, to any other premises Returned after completion process within 6* months from appointed day Returned after completion of process, after 6* Months from appointed day To factory / place of business - No Tax payable To factory / place of business - No Tax payable Tax shall be payable if Taxable under GST by Job worker or Manufacturer To factory / place of Business - No Tax payable Tax shall be payable if Taxable under GST by Job worker or Manufacturer Tax shall be payable if Taxable under GST by person returning goods Selling goods directly from premises of Job worker within 6* Months N.A. On payment of duty within India or export without payment of duty On payment of duty within India or export without payment of duty * Declaration to be filed by Manufacturer & Jobworker, if goods returned within 6 months * 6 Months can further be extended by 2 months by competent authority 46

PRICE REVISION IN CONTRACT UPWARD REVISION A supplementary invoice or debit note is required to be issued within 30 days of revision Tax is required to be paid to the extent revision under GST regime. DOWNWARD REVISION A supplementary invoice or credit note is required to be issued within 30 days of revision Tax liability to be reduced to the extent of revision under GST regime. 47

BRANCH TRANSFER AND GOODS SENT ON APPROVAL BASIS Treatment of Branch Transfers : Treatment under SGST Goods sent on Approval Basis : Goods returned within 6* months from appointed day Goods returned post 6* months from appointed day Amount of input tax credit reversed prior to the appointed day shall not be admissible as credit of input tax under this Act No tax payable Tax shall be payable by: Person returning goods Person who has sent goods on approval basis * 6 Months can further be extended to 2 months by competent authority 48

IMPORT / INTERSTATE SUPPLY ON OR AFTER APPOINTED DATE Transaction Supply made on or after appointed date Transaction initiated on or before appointed date on which full tax has been paid in earlier law Transaction initiated on or before appointed date on which partial tax has been paid in earlier law Liability of Tax payment under GST regime Liable to Tax Not liable to Tax Liable to pay Tax to the extent of balance amount Note: A transaction shall be deemed to have been initiated before the appointed day if either the invoice relating to such supply or payment, either in full or in part, has been received or made before the appointed day. 49

GST IMPACT ON BUSINESS VERTICALS ITC Credit Suppliers Customers Financing Model Offer Structure Marketing Pricing Strategies Effect on demand Legal & Finance Cash Flow Impact Drafting Agreement Impact on existing contract IT Systems & Human Resource Employee education System design Change Master Record Supply Chain & Logistics Transaction Framework Warehousing Costing Analysis 50

SECTOR SPECIFIC IMPACT Manufacturing Sector Pharma Sector Automobile Sector Media and Entertainment Sector Hospitality Sector IT & ITES Sector Turnkey Projects / EPC Sector Real Estate Sector Education Sector Banking and Financial Sector Logistics Sector E-Commerce 51

KMS OFFERINGS Assessment of the impact of GST on different business functions Evaluation of transitional impact on current business structure Drawing up of new business model suitable under GST regime Implementation of new business model Post-implementation, Validation & Refinement of the operating model selection Due Diligence Sector Specific Structuring Corporate trainings and Educational seminars Assistance to IT team in implementation of ERP 52

Thank You Khandhar Mehta & Shah 3 rd Floor, Devpath Complex, Off C G Road, Navrangpura, Ahmedabad 380006 Gujarat India Phone : +91 79 66315450/51/52/53 Email : amish@kmsindia.in URL : www.kmsindia.in 53