GMAS Impact and Issues in GST in Textiles and Ancilliary Industries PRESENTATION BY CA. GAURAV V SAVE MEGA GST SERIES ON SECTORAL IMPACTS WIRC OF ICAI MUMBAI, JULY 28, 2018
Imp elements Sec 2(5) agent means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another Sec 2(68) job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expression job worker shall be construed accordingly. Sec 2(72) manufacture means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term manufacturer shall be construed accordingly 2
Job Work JSW Energy Ltd Maharashtra Appellate AAR Order No: MAH/AAAR/SS-RJ/01/2018-19 dated 02/07/2018 Processing Activity on Goods Belonging to Other person Resulting in new commodity Not resulting in a new commodity Whether substantial change in nature and characteristics Not a Manufacture Yes = Manufacture NO = Not a Manufacture yet a job work 3
Imp elements Exp to sec 15 For the purposes of this Act, (a) persons shall be deemed to be related persons if (i) such persons are officers or directors of one another s businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or they are members of the same family; (b) the term person also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related. 4
Textile Industry Brief Modus Operandi Purchase Dyeing, etc Greige Fabric Yarn Fabric Weaving Dyeing Re - Dyeing Tailoring Packing Shipment Garment 5
Del credere Agency Shreenath Polyplast Pvt. Ltd - GUJ/GAAR/R/2018/3 Positive move to cover the interest on the short term loan extended by Del credere to the buyer as eligible for exemption / NIL rate of tax under Entry No 27 of Notification 12/2017 Central Tax (Rate) Unambiguously covering it under Interest on extending loan or advance and not under sec 15(2)(d) as interest for delayed payment of consideration 6
7
Sec 19. Taking input tax credit in respect of inputs and capital goods sent for job work (1) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on inputs sent to a job-worker for job-work. (2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job-work without being first brought to his place of business. (3) Where the inputs sent for job work are not received back by the principal after completion of job-work or otherwise or are not supplied from the place of business of the job worker in accordance with clause (a) or clause (b) of sub-section (1) of section 143 within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when the said inputs were sent out: Provided that where the inputs are sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker. 8
Sec 19. Taking input tax credit in respect of inputs and capital goods sent for job work (4) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on capital goods sent to a job worker for job work. (5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job-work without being first brought to his place of business. (6) Where the capital goods sent for job work are not received back by the principal within a period of three years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out: Provided that where the capital goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of capital goods by the job worker. (7) Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work. Explanation. For the purpose of this section, principal means the person referred to in section 143. 9
ITC Rule 45. Conditions and restrictions in respect of inputs and capital goods sent to the job worker (1) The inputs, semi-finished goods or capital goods shall be sent to the job worker under the cover of a challan issued by the principal, including where such goods are sent directly to a jobworker. (2) The challan issued by the principal to the job worker shall contain the details specified in rule 55 (3) The details of challans in respect of goods dispatched to a job worker or received from a job worker or sent from one job worker to another during a quarter shall be included in FORM GST ITC-04 furnished for that period on or before the twenty-fifth day of the month succeeding the said quarter (4) Where the inputs or capital goods are not returned to the principal within the time stipulated in section 143, it shall be deemed that such inputs or capital goods had been supplied by the principal to the job worker on the day when the said inputs or capital goods were sent out and the said supply shall be declared in FORM GSTR-1 and the principal shall be liable to pay the tax along with applicable interest. 10
Sec 143 Job Work Procedure (1) A registered person (hereafter in this section referred to as the principal ) may under intimation and subject to such conditions as may be prescribed, send any inputs or capital goods, without payment of tax, to a job worker for job-work and from there subsequently send to another job worker and likewise, and shall, (a) bring back inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out, to any of his place of business, without payment of tax; (b) supply such inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out from the place of business of a job worker on payment of tax within India, or with or without payment of tax for export, as the case may be 11
Sec 143 Job Work Procedure Provided that the principal shall not supply the goods from the place of business of a job worker in accordance with the provisions of this clause unless the said principal declares the place of business of the job-worker as his additional place of business except in a case (i) where the job worker is registered under section 25; or (ii) where the principal is engaged in the supply of such goods as may be notified by the Commissioner. (2) The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal. (3) Where the inputs sent for job work are not received back by the principal after completion of job work or otherwise in accordance with the provisions of clause (a) of subsection (1) or are not supplied from the place of business of the job worker in accordance with the provisions of clause (b) of sub-section (1) within a period of one year of their being sent out, it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when the said inputs were sent out 12
Sec 143 Job Work Procedure (4) Where the capital goods, other than moulds and dies, jigs and fixtures, or tools, sent for job work are not received back by the principal in accordance with the provisions of clause (a) of sub-section (1) or are not supplied from the place of business of the job worker in accordance with the provisions of clause (b) of sub-section (1) within a period of three years of their being sent out, it shall be deemed that such capital goods had been supplied by the principal to the jobworker on the day when the said capital goods were sent out. (5) Notwithstanding anything contained in sub-sections (1) and (2), any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax, if such job worker is registered, or by the principal, if the job worker is not registered. Explanation. For the purposes of job work, input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker 13
Posers - Circular 38/12/2018 F.NO.20/16/03/2017-GST dt 26-3-2018 Whether job worker is required to include the value of the moulds supplied by the principal used in the activity of job work for the purpose of discharging applicable GST? NO What if the job workers turnover is below Rs. 20 lakhs and he is in different state as that of principal. Whether registration is compulsory u/s 24(i)? NO Whether job Worker is required to include the cost of the conversion loss incurred / scrap generated during the job work in taxable value of supply? NO 14
15
e-way Bills (For Maharashtra) Notfn: 15E/2018 State Tax Where the goods described in column (3) are transported for a distance of upto 50 kilometers within the State of Maharashtra for the purpose of job work as defined in sub-section (68) of section 2 of the Maharashtra Goods and Services Tax Act, 2017 or, as the case may be, sub-section (68) of section 2 of the Central Goods and Services Tax Act, 2017 Hank, Yarn, Fabric and Garments of any value Where the movement commences and terminates within the State of Maharashtra Any goods not exceeding consignment value of Rs. 1 lakhs 16
e-way Bills Bill to Ship to Bill to Ship to model for invoicing can be preferred while sending the delivery directly at the door step of the job worker Also the same model can be used for direct supply from place of job worker with the use of additional features of Bill From & Despatch From 17
18
Major Situations for Refund Textile Sector Excess payment due to mistake and inadvertence Inverted structure of taxes, i.e Tax rate on Inward supplies > on outward supplies Export (including specified deemed export) 19
Inverted Duty Structure Clause (ii) to Provisio to sec 54(3) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council 20
Situations for No Refund Goods are subject to export duty If supplier avails drawback Goods are NIL Rated / Fully Exempted Unutilised credit other than due to Inverted Duty Structure / Exports 21
Formula for calculation of Inverted Duty Refund Amount Rule 89(5) Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC} ---------------------------------------- Adjusted Total Turnover} Added services by the Central Goods and Services Tax (Fifth Amendment) Rules, 2018, w.r.e.f. 1-7-2017 Less[Tax payable on such inverted rated supply of goods and services] 22
Adjusted Total Turnover "Adjusted Total turnover" means the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding (a) the value of exempt supplies other than zero-rated supplies, and (b) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or (4B) or both, if any, 23
Which Inputs are to be considered Input G Input H Input I Output LMN Turnover of inverted rated supply of goods and services? 5 % 12% 18% 12% Total Outward supply of LMN of relevant period 18% 18% 18% 18% NA 12% 5% 5% 5% Total Outward supply of ABC of relevant period 12% 12% 12% Nil Rated NA 12% 12% 12% Exempted NA 24
Posers Exporter is exporting Goods notified vide notification no. No.5/2017 Central Tax (Rate) as not eligible for ITC Refund (e.g. Woven Fabrics). If Exporter exports such notified goods, is he eligible for refund Circular no. 18 clarifies: Subject to the provision of Section 54(10) (Filing of Return / payment of Return Dues etc.), a manufacturer of such fabrics will be eligible for refund of ITC of GST in respect of such exports. 25
Poser Whether Independent fabric processors (job workers) in the textile sector supplying job work services are eligible for refund of unutilized input tax credit on account of inverted duty structure under section 54(3) of the CGST Act, 2017, even if the goods (fabrics) supplied are covered under notification No. 5/2017-Central Tax (Rate) dated 28.06.2017? Circular No. 48/22/2018-GST - fabric processors shall be eligible for refund of unutilized ITC on account of inverted duty structure Refund can be claimed only for Inputs like Chemical etc. No Inverted Duty Refund for Input Services. 26
Poser Assume a case where inputs with different rate of 12%, 18%, 28% are used together with different ratio to manufacture different product of 12%,18%,28% rate etc. In this situation, how it can be ascertained that particular product is of inverted duty structure? Based on available Costing Output Y GST Rate : 12% Records / BOM Output Z GST : 18% Input A : 5%, 20% consumption for output X, 30% Assuming Normal Process for output Y, 50% for output Z. loss. How to find out inverted duty Turnover for 89(5) formula? Input B : 12%, 10% consumption for output X, 60% for output Y, 30% for output Z. Input C : 18%, 80% consumption for output X, 5% for output Y, 15% for output Z. Output X GST Rate : 5% 27
Weighted Average Working Output X = 5 * 20% (+) 12* 10% (+) 18* 80% Output Y = 5*30% (+)12*60% (+) 18*5% Output Z = 5*50% (+) 12*30% (+) 18*15% Weight ed Avg. Input Rate Output Rate Remark 16.6% 5% Turnover of Output X to be counted for Inverted duty 9.6% 12% Turnover of Output Y NOT to be counted for Inverted duty 8.8% 18% Turnover of Output Z NOT to be counted for Inverted duty 28
20/2018 Central Tax (Rate) dt 26/07/2018 Proviso added to 5/2017 CT(R) as amended by 29/2017 CT(R) & 44/2017 CT(R) which contained in respect of which no refund of unutilised input tax credit shall be allowed, where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies of such goods (other than nil rated or fully exempt supplies). Provided that,- (i) nothing contained in this notification shall apply to the input tax credit accumulated on supplies received on or after the 1st day of August, 2018, in respect of goods mentioned at serial numbers 1, 2, 3, 4, 5, 6, 6A, 6B, 6C and 7 of the Table below; and (ii) in respect of said goods, the accumulated input tax credit lying unutilised in balance, after payment of tax for and upto the month of July, 2018, on the inward supplies received up to the 31st day of July 2018, shall lapse.. 29
Impact of 26/07/2018 W.e.f. Surplus of inverted duty structure of inputs shall be refundable corresponding reduction in cost Outstanding ITC Credit balance as on 31 st July 2018. - It Shall lapse, It must be written off in the books?? Or Lapse for the purpose of refund only?? When on 31 st July 2018 or Whichever balance available on 31 st March 2018, at the same time? Treatment in books of accounts What about ITC on stock as on 31 st July 2018 It shall be available for discharging duty liability of such stock on its further supply 30
53/2018-Customs dated 16/07/2018 Sr No 531010 customs duty increased to 20% and 540752 customs duty increased to 20% / Rs. 38 per square meter 31
GST Section 74 [ Exp 2] Suppression Explanation 2. For the purposes of this Act, the expression suppression shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer. 32
Acknowledgements CA. Ankit Agarwal, Bhiwandi CA. Jignesh Kansara, Mumbai CA. Gopal Kedia, Mumbai 34
samgaccqvam!!... CA. Gaurav V Save G M A S & Associates Mumbai Lonavala Nashik 35