GST Round up Volume - I (No.1) 30 November 2016 Contents News Headlines 2 Analysis Comparative analysis Model GST Laws 3 Comparative analysis Model IGST Law 5 Valuation provisions under GST old wine in a new bottle?. 6 Helpdesk 9 Updates on GST Rules & 11 Procedures About JMP Advisors Pvt Ltd 12
News Headlines Centre and States have not yet reached a consensus on dual control Consensus on the issue of dual control as to which taxpayer is to be assessed by whom, between the Centre and the States has not yet been reached. This was evident in the informal meet between the Centre and the States on 20 November 2016. The States are insisting to have a sole administrative control on the assessees having annual turnover up to INR 1.5 Crore inclusive of goods and services. The idea behind the said issue is that the same tax payer is not assessed by both the Centre and the relevant State and clarity on the issue is most crucial for the roll out of the GST on 1 April 2017. The meeting of the GST Council which was fixed on 24 and 25 November 2016 is now postponed to 2 and 3 December 2016. (Source: The Economic Times, 21 November 2016 - http://economictimes. indiatimes.com) proposed an anti-profiteering clause. An Authority would be created or empowered under GST law to ensure that companies do not pocket gains in lieu of input tax credits or lower rates, according to the draft law circulated to State governments. The provision is drawn from the Malaysian GST framework, rolled out in 2015, that provided for a separate anti-profiteering law to ensure that companies and traders do not get undue benefits from the sudden lowering of the tax rate and make consumers suffer price shocks. (Source: The Economics Times, 25 November 2016 http://economictimes. indiatimes.com) Revised draft GST laws issued, to be placed before Council on 2-3 December 2016 The revised drafts of three Goods and Service Tax laws have been released after incorporating suggestions from stakeholders, the government said on Saturday. These will now be placed before the Goods and Services Tax Council in its next meeting on December 2 and 3. (Source: Business Standard 26 November 2016-http://www.business-standard.com) Companies may be forced to pass on benefits to consumers under GST India Inc will have to pass on any benefits derived from the proposed Goods and Services Tax (GST) to consumers in the form of reduced prices or face penal provisions, according to the draft law, which has P a g e 2
Analysis Comparative analysis Model GST Laws Particulars Model GST Law (June 2016) Sections It consisted of Sections 1-162E. Schedules There were 4 schedules to the CGST/ SGST Act. Revised Model GST Law (November 2016) It consists of Sections 1-197. There are 5 schedules to the CGST/ SGST Act. A new schedule (Negative List) inserted to specify Activities/ transactions which shall be treated neither as a supply of goods nor supply of services. Aggregate Turnover Section 2(6)) Aggregate Turnover includes "Non- Taxable" supplies made by Taxable person Non-Taxable supplies excluded from the definition of Aggregate Turnover. Inter-state supplies of a person having same PAN to form part of the Aggregate Turnover. Capital Goods (Section 2(19)) Definition borrowed from Central Excise Act- scope considerably restricted. Means goods, the value of which is capitalized in the books of accounts and is used in the course or furtherance of business scope of definition has been enlarged. Composite Supply (Section 2(27)) Goods (Section 2(49)) Inputs (Section 2(52)) / Input Service (Section 2(53)) Means supply consisting of 2 or more goods or services or a combination of both in the course of business Include securities but excludes actionable claims Any goods or services to qualify as inputs/ input services have to be used for outward supplies. Consequently, the definition of Capital Assets is being removed. Means 2 or more supplies of goods or services or any combination thereof naturally bundled and supplied in conjunction with each other Excludes securities but includes actionable claims- sale of securitized debt could now attract GST Restrictions relating to use of Inputs/ input services for outward supply removed. Any purchases made in the course of business should be qualify as input/ input services P a g e 3
Particulars Mixed Supply (Section 2(66)) Model GST Law (June 2016) No such concept existed Revised Model GST Law (November 2016) Means 2 or more individual supplies of goods or services or any combination thereof, made in conjunction with each other for a single price, other than composite supply Levy (Section 8) CGST/ SGST rates not capped Levy for e commerce not separately specified Value of Supply (section 15) Post supply discount is allowed to be deducted from transaction value provided discount is as per the agreement entered into before/at time of supply CGST/ SGST capped at 14% and IGST capped at 28% Levy for e commerce separately specified Post supply discount allowed to be deducted from transaction value, subject to condition that: it is as per agreement entered into on or of such supply; and Proportionate ITC has been reversed by the recipient of supply on basis of the credit note issued by the supplier Threshold for GST Registration (Section 23) Lower threshold for GST registration applicable to North-Eastern States. Lower threshold for GST registration also extended to Special Category States i.e Jammu and Kashmir, Himachal Pradesh and Uttarakhand Schedule I Supply without consideration read with Supply defined in Section 3 ITC (Section 16 to 22) "Supply without consideration" shall inter "Supply without consideration" shall inter alia includealia include- Permanent transfer/ disposal of Permanent transfer/ disposal of business assets business assets where input tax credit has been availed by the transferor on such assets Importation of service without consideration Importation of service by taxable person from related person or whether or not in the from any of his other course or furtherance of business establishment outside India in the course or furtherance of business ITC provisions have been revised largely to regulate availment of credit only after completion of supply. Anti profiteering (Section 163) No such clause existed Authority will examine whether ITC availed by any taxable person or on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of said goods. P a g e 4
Comparative analysis Model IGST Law Provision Intermediary (Section 2(13)) Location of recipient of service (Section 2(17)) Model IGST Law (June 2016) Revised Model IGST Law (November 2016) Not defined Defined as a broker, an agent, or any other person by whatever name called but does not include a person who supplies the main service or goods on his account. This definition is lifted verbatim from the existing Service Tax law. Not defined Location of recipient of service means- Place of business, if service is received at such place; Fixed place other than registered place, if service is received at such fixed place; Location of establishment most directly connected with receipt of service, if service is received at more than one place Supplies to/ from SEZ (Section 3) Place of supply for identified class of persons or categories of supplies (Section 9) Payment of tax by a supplier of OIDAR service (Section 12) Not separately specified. Hence, place of supply to be determined based on location of the supplier and the place of provision of supply. Extant rules not laid down Extant rules were not laid down for Online information and database access or retrieval service. Supply of goods/services to or by developer of SEZ or unit in SEZ shall be deemed to be a supply of goods or service in the course of interstate trade. Place of supply in case of- Immovable property Restaurant and catering service and such other specified services for personal consumption Training and performance appraisal Organization of events Telecom, internet or DTH TV services through prepaid/ recharge voucher or any other means Liability to pay tax to be determined based on the location of the service provider. P a g e 5
Valuation provisions under GST old wine in a new bottle? In any tax legislation, valuation, being the measure of tax, plays a vital role in determining the amount of tax payable by the subject. In the GST, Section 15 of the revised Model GST Law (GST Law) read with GST Valuation (Determination of the Value of S upply of Goods and Services) Rules, 2016 (GST Valuation Rules) lays down the framework for determining the value of supply of goods or services. We have discussed the key provisions under the GST law with respect to valuation of goods or services vis-à-vis provisions under the existing indirect tax regime. Basis for estimation of value Revised Model GST Law Section 15(1) of the GST Law specifies that the value of a supply of goods and/ or services shall be the transaction value ie the price actually paid or payable for the said supply of goods and/or services where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. Existing Indirect Tax Regime Under the excise law, definition of assessable value is identical to the definition of GST law. So far as the transaction is between unrelated parties and price is the sole consideration Inclusions to transaction value Taxes, duties, fees and charges levied under any statute, other than the specified statutes, are to be included in the transaction value of supply provided that the same has been separately charged by supplier from the recipient. Amount liable to be paid by the supplier of goods/services but which has been incurred by the recipient of supply This would inter alia include the cost of goods/services supplied free of cost or at a concessional rate by the recipient of supply which ought to be incurred by the supplier. Incidental expenses charged by the supplier to the recipient of supply All incidental expenses charged by the supplier at the time of, or before delivery of goods or supply of services should be included in the transaction value. Thus, packing and delivery charges, transportation charges, which are typically charged by the supplier in respect of supply of goods/ services Again, VAT law requires all duties paid/payable under Central Excise Law to be added to the price for the purpose of VAT Rule 6 of the Central Excise Valuation Rules do provide for inclusion of the cost of goods/services directly or indirectly supplied by the buyer free of cost or at a concessional rate. Existing VAT laws as well as the Service Tax Law do contain provision for inclusion of expenses charged by the supplier in connection with sale of goods or provision of service. P a g e 6
Revised Model GST Law Interest or late fee or penalty for delayed payment of consideration As per clause (d) of Section 15(2) of the Revised Model GST law, such charges would be specifically included in the transaction value of goods/ supply. It is pertinent to note that such charges are generally levied subsequent to the supply of goods/ services due to default of the recipient of supply in making prompt payment of consideration. Existing Indirect Tax Regime Under the current regime, such charges were not included in the transaction value on the understanding that such charges are post manufacture/ sale expenses and more in the nature of financial charges. Exclusions from transaction value Subsidies provided by the Central or State Government to be excluded As per the Model GST Law, subsidies linked to the price of goods/ services shall alone be included in the transaction value. Thus, capital subsidies provided in connection with investment in eligible fixed assets shall not form part of the transaction value. Also, subsidies provided by the Central/State Governments have been specifically excluded from the transaction value. Further, many a times, subsidies are directly credited to the account of the consumer/ recipient of supply. As per explanation to clause (e) of Section 15(2), subsidies which are received by the supplier alone would be included in the transaction value. Discounts given by the supplier before or at the time of supply shall be excluded from the transaction value of supply subject to the condition that the same has been disclosed in the invoice issued by the supplier. Further, discount given subsequent to the supply shall be excluded if the same is given pursuant to an agreement executed at the time of, or before, delivery of goods/ supply of service and Central Excise Valuation Rules or VAT laws do not specifically provide for treatment of subsidies received by the supplier of goods. However, courts have held that where subsidies are not linked to the price of the goods supplied, the same should not be included in the transaction value of goods. Under the existing central excise laws/ VAT laws, trade discounts given by the supplier of goods is deductible from the transaction value of goods if the same was known at the time or before supply of goods. P a g e 7
Valuation of supplies to related parties Inter unit transfers MRP based valuation Revised Model GST Law the recipient has also reduced proportionate input tax based on the documents issued by the supplier. In case of related person transactions, the following methods have been prescribed under the GST Valuation Rules to ascertain that relationship between the parties has influenced the price. Comparison Method Computed Value Method Residual Method Inter-state supplies by one unit to other unit of the same person has to be valued as per the GST Valuation Rules. Under the Model GST Law, there is no separate provision for taxation of supplies based on MRP valuation. As per Section 15(5) of the Model GST Law, powers have been granted to the Central/State Government to levy tax, based on the recommendations of the GST Council, in such manner as may be prescribed. It is likely that MRP based valuation may be extended to goods covered under the Legal Metrology Act, 2009. Existing Indirect Tax Regime As per Rule 9 of the Central Excise Valuation Rules, where goods are sold through related persons, assessable value shall be the normal transaction value at which such goods are sold by the related person to unrelated buyers. Under the Central Excise Valuation Rules, inter unit transfers for captive consumption have to be valued at 110% of the cost pf production of the transferor. In case of notified goods on which RSP is mandatorily required to be declared under the Legal Metrology Act, 2009 assessable value shall be determined as per Section 4A of the Central Excise Act. P a g e 8
Helpdesk Question: I am a CFO in a well know Insurance company, dealing in general insurance services in India. We have engaged an overseas insurance agent for reinsurance of insurance cover issued by us. In the Service Tax regime, services provided by an intermediary is covered under Rule 9 of the Place of Provision of Services Rules, 2012 ( POPS Rules ). I n terms of Rule 9 of the POPS Rules, the place of provision of services provided by overseas intermediary who does not have presence in India, will be treated as services provided from outside the taxable territory and service tax liability on such services will not arise. The heart of GST is that every person in the chain of supply would be treated as supplier and liable to GST. Given that, place of supply of service provided by insurance agent or intermediary has not been separately defined in MGST, I intend to know whether services received from overseas reinsurance agent will be treated as import of service and liable to GST or that the insurance company will still be exempt from payment of GST on service provided by such reinsurance agent. Answer: It is pertinent to note that as per subsection 8 (b) of Section 10 of the revised Integrated Goods and Services Tax Act, 2016 ('IGST') released by the GST Council on 25 November 2016, in case of intermediary services, the location of the supplier shall be the place of supply of service. Further, as per sub-section 11 of section 2 of IGST Act "Import of Service" means the supply of any service, where (a) the supplier of service is located Outside India, (b) the recipient of service is located in India, and (c) the place of supply of service is in India; On a plain reading of Section 2(11) of the IGST, a service shall be treated as import of service if all the three conditions mentioned therein are satisfied. In the instant case, the place of supply i.e. location of reinsurance agent is outside India, services provided by him shall not be construed as import of service. Accordingly, supply received from overseas reinsurance agent shall not be subject to service tax. In a nutshell, there will be no change in the taxability of services provided by intermediary as compared to the existing Service Tax Law. Question: I am a stock broker registered with SEBI. I am providing stock broking services to my clients and also trade in shares on my own account. Presently, taxes like securities transaction tax, stamp duty, SEBI turnover charges etc are levied on trading of securities but VAT / Service Tax is not levied on it. I have been informed that I shall be required to pay GST on trading of securities undertaken by me. Please clarify, whether GST will be leviable on trading of securities and am I required to obtain registration for the investment activity carried out by me? P a g e 9
Answer In the given situation, you have two streams of revenue viz brokerage income for providing stock broking services and investment income for trading in securities in your own account. It is pertinent to note that as per the revised MGST law released by the GST Council on 25 November 2016 securities are neither goods nor services. Given this, income from investment in shares will not attract GST.. It is also pertinent to note that there will be no change in the position with respect to taxability of stock broking service under the GST vis-à-vis current indirect tax regime. Given this, though there will be no requirement to obtain registration for investment in shares, it will be incumbent on you to be registered for the stock broking services provided to your clients. States as of now as my sales turnover is below threshold limit. GST is a single levy tax from State and Central Government and allows seamless tax credit. I am thinking to get voluntary registration in GST for my Nagpur office. Will it be sufficient to get registered in only one State instead of taking registration in all States where I have business operations? Answer Section 23 of the MGST law talks about Registration. Schedule V to the CGST/ SGST Act specifies that registration is mandatory for following persons- Every supplier who makes taxable supply of goods and / or services, if his aggregate turnover in a financial year exceeds INR 10 Lakh for northeast state and INR 20 Lakh for other States. Minimum threshold stated above, does not apply to a person making any inter-state taxable supply. The Taxable threshold shall include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals. Question: I am a small trader having branches in Assam, Goa and Punjab and an administrative office in Nagpur, Maharashtra. My aggregate turnover for all the branches put together is INR 8,00,000/- Presently, I am not registered in any of the An option is also given to the supplier to get registered voluntary in GST regime. MGST law clarifies that registration of supplier based on his aggregate turnover of sale/supply only except in case he has inter-state supply. In our view, obtaining of voluntary registration only in the State of Maharashtra would be in order provided you do not have any interstate supply in other States. P a g e 10
Updates on GST Rules & Procedures Migration of existing registration data The process of migration of existing VAT/ Service tax payers began with the launch of a website, www.gst.gov.in. The migration of existing data to GST portal shall be carried out phasewise, as tabulated below.: States Start Date End Date Puducherry, Sikkim 8 November 2016 23 November 2016 Gujrat, Maharashtra, Goa, Daman and Diu, Dadra Nagar Haveli, Chhattisgarh Odisha, Jharkhand, Bihar, West Bengal, Madhya Pradesh, Assam, Tripura, Meghalaya, Nagaland, Arunachal Pradesh, Manipur, Mizoram Uttar Pradesh, Jammu and Kashmir, Delhi, Chandigarh, Haryana, Punjab, Uttarakhand, Himachal Pradesh, Rajasthan Kerala, Tamil Nadu, Karnataka, Telangana, Andhra Pradesh 14 November 2016 29 November 2016 30 November 2016 15 December 2016 16 December 2016 31 December 2016 01 January 2017 15 January 2017 Service Tax Registrants 01 January 2017 31 January 2017 Delta All Registrants (All Groups) 01 February 2017 20 March 2017 Important Notes In case the assessee is unable to apply for enrolment as above for any reasons, he may enroll before end of January 2017. Provisional ID & Password required for enrolment onto the GST portal can be collected from the respective tax departments. Enrolment for Service tax registrants shall start from 1 January 2017. Mobile No. and E-mail ID once submitted would not be available for amendment before April, 2017. A detailed procedure for the registration along with the procedure to track status of submitted application has been provided by the Central Government. (Source: www.gst.gov.in/enrolplan) Distribution of provisional login id and password to Maharashtra VAT dealers Enrolment activation drive for Maharashtra state started from 15 November 2016 and ends on 30 November 2016.GST Enrolment process is online through a portal maintained by the State Government. All dealers who are registered under The Maharashtra Value Added Tax Act, 2002 need to log on to the MSTD website P a g e 11
www.mahavat.gov.in and follow the Steps mentioned to obtain their Login ID and password from the MSTD. After completion of the above procedure, dealer needs to login to GST Common Portal for enrollment. GST Provisional ID is made available for the dealers registered upto 31 August 2015. Login id for other dealers, whose PAN is validated, will be made available in the next phase. On submission of the enrollment application with E-sign/DSC, an Application Reference Number(ARN) will be generated which will be used for future correspondence with GSTN /track the application status. (Refer: Trade Circular No. 35T of 2016 dated 12 November 2016 issued by the Commissioner of Sales Tax, Maharashtra) About JMP Advisors Pvt Ltd JMP Advisors is a leading professional services firm that offers advisory, tax and regulatory services. The vision of JMP Advisors is to be The Most Admired Professional Services Firm in India. It aims to be the best as measured by the quality of its people and service to clients. The firm has a merit based culture and operates to the highest standards of professionalism, ethics and integrity. We have a team of qualified professionals with wide-ranging experience across various functions. Our team at JMP Advisors takes pride in being the best at what matters most to clients - technical expertise, innovative solutions, consistent high quality service, reliability & ease of doing business. JMP Advisors has been recognized again as a leading Tax firm in the ITR World Tax 2017 Guide. Our Services Advisory Direct Tax Indirect Taxes Due Diligence and Valuation Foreign Investment Consulting Fiscal Strategy & Policy Foresight Family Business Planning Address: 12, Jolly Maker Chambers II Nariman Point, Mumbai 400 021, India Email: info@jmpadvisors.in Phone: +91.22.22041666 International Taxation Indian Domestic Taxation Transfer Pricing Tax Dispute Resolution Mergers and Acquisitions Audits under Indirect Tax Laws Services on GST Advisory Services Compliance Services Litigation Support P a g e 12