All about GST in India- Summary of all Important Provisions
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GST is a Value added tax on the supply of goods and/or services. GST is a single tax at a national level to be levied at all stages right from manufacturing to final consumption. Under GST every person is liable to pay tax on his output and is entitled to get input tax credit (ITC) on tax paid on its inputs, input services and capital goods. Therefore, it is a tax on the value addition only. Ultimately the final consumer shall bear the burden of tax under GST.
Following topics will be covered in this article
The main objectives of GST are:
- Enlarge the tax base now that India is moving towards being a developed economy,
- Encourage the parallel economy which presently contribute less on nothing to the tax to join the mainstream,
- Avoiding the cascading impact of multiple levies. i.e. tax on tax,
- Reduce the multiplicity of taxes on transactions and lead to a common market,
- Reducing the cost of compliance for Government and assessee and
- Reduce the interface between the tax payer and the administrators by using information technology.
SCHEME OF GST
- Section 9 of the CGST Act, 2017 and Section 5 of the IGST Act, 2017 provides for the levy of GST on all Intra-state (within-state) and all Inter-state (Outside state) respectively, supply of goods or services or both.
- Thus “supply” comes out to be the ‘taxable event’ under GST
- Therefore, the GST can be levied where,
- There is a “supply”
- Supply should be “intra-state supply” or “Inter-state supply”
- Supply should be of “goods” or “services”
- Central Tax (CGST) and State Tax (SGST) are required to be paid on the intra-state supplies and Integrated Tax (IGST) has to be paid on all inter-state supplies.
The above terms are discussed hereunder:.
Supply has been defined to include all the activities which were hitherto covered in the 11 State and Central taxes which have been subsumed in GST. This very wide definition is normally applicable only if activity is in furtherance of business and with a consideration. The wide definition of “business” means that almost all activities are covered including the activities by Government and supplies to Government unless specifically excluded.
Supply with Consideration
The normal supply includes agreeing to supply goods or services in the course of business.
The basic test for being a ‘supply’ that it must be
- In the course or furtherance of business and
- There must be some consideration involved in it.
Business has been defined widely to include associations; government etc. and one may have to be very careful in taking a view that it is not a business.
It specifically includes: sale, transfer, barter, exchange, license, rental, lease and disposal.
It also specifically includes import of services for a consideration whether or not the activity is a business. Therefore, imports on personal account would be liable
Supply without Consideration
Schedule I provides for the activities which are considered to be liable even though there has been no consideration. They are:
- ITC availed business assets disposed or permanently transferred.
- Supply made between distinct person (same PAN- different States) which means that stock transfers would also be liable.
- Supply between related persons in the course of business. Services to employees who are also considered as related therefore supplies which are not part of their gross emoluments would also be liable subject to the relaxation upto INR 50,000 per employee in a Financial Year.
- Supply of goods by agent to principal or vice versa when agent is working on behalf of the principal.•Import of goods from related parties.
Schedule II-following matters to be treated as a supply of goods or a supply of services:
- Any transfer of title to goods is a supply of goods.
- Any transfer of goods or right in goods or undivided share without transfer of title is supply of services.
- Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed is a supply of goods.
2. Land and Building
- Any lease, tenancy, easement, license to occupy land is a supply of services.
- Any lease or letting out of the building including a commercial, industrial or residential complex for business or comer, either wholly or partly, is a supply of services.
3. Treatment or process Any treatment or process which is being applied to another person’s goods is a supply of services
4. Transfer of business assets
- Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether for a consideration, such transfer or disposal is a supply of goods by the person
- Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether for a consideration, the usage or making available of such goods is a supply of services
- Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be taxable person. However, aforesaid provision of deemed supply of goods shall not apply in the following cases:
- Where the business is transferred as a going concerned to another person; or
- Where the business is carried on by a personal representative who is deemed to be a taxable person
5. Contains a list of supplies to treated as “supply of services”.
6. The most preferred area of litigation i.e. supply of works contract service in relation to immovable property and supply of food and beverages are being classified as supply of services, therefore limiting the scope of litigation.
7. Supply of goods by Association to its members.
The main purpose of Schedule II is to minimize the scope of dispute between the department and the tax payer.
Supply also excludes certain activities which are not a supply of goods or services [Sch- III] :
These activities are as under:
- Services by employee to employer
- Services by court or tribunal
- MLAs, MPs and persons who hold position bodies established by Central or State Government.
- Sale of land and sale of building other than those under construction.
- Actionable claims other than lottery, betting and gambling.
- Merchanting trade transactions
- In-bond sales and high-sea sales
Composite and Mixed Supply
In terms of Section 8 of the Act, the tax liability on a composite or a mixed supply shall be determined in the following manner-
- a composite supply comprising two or more supplies, one of which is a principal sully, shall be treated as a supply of such principal supply. Example- Supply of food during the course of transportation of passengers by air services shall be treated as supply of transportation of passengers by air.
- a mixed supply two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.
Inter and Intra State supply
The intra-State supply is where
- the location of the supplier and
- the place of supply are
within the State.
Inter-State supply would be when
- location of the supplier and
- the place of supply of
are in different States or Union territories.
To determine whether within the state or outside one would require examining the place of supply section 12 or 13 of the IGST.
The applicability of types of GST in normal transactions can be seen in table below:
|Type of Transaction||Type of Tax|
|Supply of Goods, or of services, or both within the State (same transaction would suffer both types of tax)||SGST/UTGST and CGST|
|Supply of goods, or of services, or both in course of inter-State trade or commerce||IGST|
|Supply of goods, or of services, or both in course of |
Import into the territory of India
Reverse Charge Mechanism
In the economy of India, we have had a large number of the goods and services being provided by the unorganised trade/ industry supplying to the final consumer as well as the trade and industry. Some have been specified as payable by the specified receiver such as Goods Transport agent, sponsored, advocate, services from outside India etc. under section 9 (3). This is a carry forward from the service tax regime. These procurements do not have any exemption and one has to register from day 1.
- Under GST, normally the tax is required to be paid the credit of the government. However, in terms of Section 9(3) the Central Government may, on the recommendation of the Council, by notification, specify categories of supply of goods and/or services the tax on which is payable on reverse charge basis and the tax thereon shall be paid by the recipient of such goods and/or services.
- The list of goods and services on which the tax is required to be paid by the recipient under the reverse charge mechanism has been provided in Annexure 1.
In general, there are some suppliers of goods and services who maybe small and below the threshold limit of Rs. 20/ 10 Lakhs. In addition, there are those who have been avoiding the tax by not raising invoices or keeping themselves under the limit by having multiple businesses. Therefore, one more levy on receipts from unregistered suppliers by registered persons had been imposed under section 9 (4) of CGST and 5(4) of IGST. This levy applies when (a) specified goods or services and (b) specified categories of registered recipients, are notified by the Government.
List of services on which GST is to be paid under RCM as per notification No.10/2017-Integrated Tax (Rate) dated 28.06.2017 and amended from time to time
|Description of Service||To be paid by – recipient being||Notification No.||Wef|
|1||Any service supplied by any person in non-taxable territory, to any person other than a non-taxable online recipient,||Any person located in the taxable territory||10/2017-Integrated Tax (Rate)||01.07.2017|
|2||Goods Transport Agency (who has not paid IGST at 12% inserted vide notification No.22/2017 Integrated Tax (Rate) dated 22.08.2017) provided to persons specified in Note 1 (i)||Received by any person specified in Note1(i)below but excludes persons specified in Note 1(ii) below||10/2017-Integrated Tax (Rate)||01.07.2017|
|3||Legal Services provided by advocates or firm of advocates||Recipient if business entity located in taxable territory||10/2017-Integrated Tax (Rate)||01.07.2017|
|4||Services supplied by an arbitral Tribunal to business entity.||Recipient if business entity||10/2017-Integrated Tax (Rate)||01.07.2017|
|5||Sponsorship||Any body corporate or partnership firm||10/2017-Integrated Tax (Rate)||01.07.2017|
|6||Services provided or agreed to be provided by CG/SG/UT or local authority excluding services mentioned in Note 2||Recipient if business entity||10/2017-Integrated Tax (Rate)||01.07.2017|
|6A||Services supplied by Central Government, State Government, Union Territory or Local Territory by way of renting Immovable property to a person registered under the CGST Act,2017||Any person registered under the CGST Act,2017||3/2018-Integrated Tax (Rate)||25.01.2018|
|7||Services by Director to a Company||Recipient if company or body corporate||10/2017-Integrated Tax (Rate)||01.07.2017|
|8||Service by insurance agent||Recipient is a person carrying on insurance business||10/2017-Integrated Tax (Rate)||01.07.2017|
|9||Service of a recovery agent||Recipient if banking co. or a financial institution or a NBFC||10/2017-Integrated Tax (Rate)||01.07.2017|
|10||Transportation of goods by a vessel from outside India upto customs station of clearance in India, supplied by a person located in non taxable territory.||Importer located in the taxable territory.||10/2017-Integrated Tax (Rate)||01.07.2017|
|11||Transfer or permitting the use or enjoyment of a copyright covered under clause(a) of sub-section(1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works, by an author, music composer, photographer, artist or the like||Recipient if publisher,music company, producer or like||10/2017-Integrated Tax (Rate)||01.07.2017|
|12||Supply of services by the members of Overseeing Committee to Reserve Bank of India||Recipient if Reserve Bank of India.||34/2017-Integrated Tax (Rate)||13.10.2017|
|13||Services supplied by individual Direct Selling Agents (DSA’s) other than body corporate, partnership or LLP.||A banking company or a NBFC, located in the taxable territory.||16/2018-Integrated Tax (Rate)||26.07.2|
|14||Services provided by business facilitator(BF)||A banking company ,located in the taxable territory||30/2018-Integrated Tax(Rate)||01.01.2019|
|15||Services provided by an agent of business correspondent (BC)||A business correspondent, located in the taxable territory.||30/2018-Integrated Tax(Rate)||01.01.2019|
|16||Security services (services by way of supply of security personnel) provided by other than body corporate. Refer Note 3 for exceptions.||Any registered person, located in the taxable territory.||30/2018-Integrated Tax(Rate)||01.01.2019|
GTA services when received by the following persons RCM will apply:
- any factory registered under or governed by the Factories Act, 1948;
- any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India;
- any co-operative society established by or under any law;
- any person registered under CGST/SGST/UTGST Act;
- any body corporate established, by or under any law; or
- any partnership firm whether registered or not under any law including association of persons.
- Casual taxable person
of transport of goods in a goods carriage by road, to,
- Department or Establishment of the Central Government or State Government or Union territory; or
- local authority; or
- Governmental agencies
Who has taken registration under the CGST Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 and not for making a taxable supply of goods or services.
For the following services received from Government or local authority, no RCM
- renting of immovable property, and
- services specified below-
- services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided
to a person other than Government;
- services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
- transport of goods or passengers.
- services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided
Security services when provided to the following persons, no RCM :
- A department or establishment of the Central Government or State Government or Union Territory or
- Local authority or
- Government agencies which has taken registration under the GST only for the purpose of
deducting tax under section 51 and not for making a taxable supply of goods or services
- A person registered under composition scheme (as per section 10 of CGST Act)
List of Goods on which GST is to be paid under RCM as per Notification No. 4/2017-Integrated Tax (Rate) as amended from time to time
|No.||Description of Goods||Supplier||Notification|
|1||Cashew nuts, not shelled or peeled||Agriculturist||04/2017- Integrated Tax (Rate)||01.07.2017|
|2||Bidi wrapper leaves (tendu)||Agriculturist||04/2017- Integrated Tax (Rate)||01.07.2017|
|3||Tobacco leaves||Agriculturist||04/2017-Integrated Tax (Rate)||01.07.2017|
|4||Silk yarn||Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn||04/2017-Integrated Tax (Rate)||01.07.2017|
|4A||Raw cotton||Agriculturist||45/2017- Integrated Tax (Rate)||15.11.2017|
|5||Supply of lottery||State Government, Union Territory or any local authority||04/2017-Integrated Tax(Rate)||01.07.2017|
|6||Used vehicles, seized and confiscated goods, old and used goods, waste and scrap||Central Government, State Government, Union territory or a local authority||37/2017-Integrated Tax (Rate)||13.10.2017|
|7||Priority Sector Lending Certificates||Any registered person||12/2018-Integrated Tax (Rate)||28.05.2018|
SMALL SUPPLIER EXEMPTION
The registration is exempted to those who supply goods or services below an aggregate value of Rs. 20 Lakhs per year. A smaller limit of Rs. 10 Lakhs has been fixed for special category States which are underdeveloped. This exemption however is not available for the following:
- One who is liable for reverse charge under section 9 (3) of CGST or 5(3) of IGST for specified services,
- One who is liable for reverse charge under section 9 (4) of CGST or 5(4) of IGST for any supplies form unregistered supplier,
- Involved in e- commerce business through a e commerce operator,
- Engages as a casual taxable person or non-resident person making taxable supplies,
- Online data base service provider outside India,
- Person who is required to deduct tax,
- Person who does interstate supply of goods* (interstate supply of services is allowed within the exemption)
- Agent of a principal and
- Any person notified by Government.
*Exemption has been provided to the supplier of 34 handicraft goods subject to the condition of holding PAN number issued under Income Tax law and the aggregate turnover doesn’t crosses INR 20 lakhs. And INR 10 Lakhs in case of special category states.
GST Council in its 32rd Meeting has recommended to increase the threshold limit to Rs. 40 lakhs (20 lakhs in specified States) in respect of supply of goods. The States have been given time of 7 days to determine whether they wish to continue with the old limit or new limit.
In India due to the large number of entrepreneurs being uneducated or unorganised in sectors like man power supply, construction, hotels, small traders States came up with alternative tax collection mechanisms which did not need maintenance of proper records. These schemes however were used by many whose turnover was in crores. In some States there was no limit fixed due to compromises made. In GST also considering that such real smaller players are in high numbers a scheme of lower payment of tax has been implemented.
The tax rates are: traders -1%, Specified Manufacturers- 1% and Suppliers of food & beverages- 5%. This is available upto Rs. 1.5 Crore subject to the following conditions:
- Person having business in different States needs to be separately registered in all of them. In other words, a person cannot be in composition in one registration and outside in another registration. The aggregate turnover from all locations should not exceed Rs. 1.5 crore,
- Service providers cannot opt for this scheme except those engaged in the supply of food and beverages, (outdoor caterer/hotel etc.) have the limit of Rs. 50 lacs.
- No input tax credit is available to such person, Such person cannot collect the composition tax from the recipient,
- Composition dealer cannot have any stock which are procured outside state/imported in hand before opting composition,
- Person who makes any supply of goods through an Electronic Commerce Operator cannot opt for the scheme and
- Person who is a manufacturer of such goods as may be notified on the recommendation of the Council cannot opt for the scheme. Ice cream, pan masala and Tobacco products under chapter 24 are notified till date.
The disadvantage of the composition scheme when one is an intermediary is that the ITC is not availed + there is a tax outflow which the receiver cannot avail. Therefore, the composition scheme is not beneficial to those in B2B activity but to only those who supply to the final consumer [ B2C].
We have a number of rates in GST due to the federal structure and varied culture, economic disparity and nature of our people. The broad list of GST rate as per the given schedule is as follows:
Rates for Goods
- 5 per cent. in respect of goods specified in Schedule I,
- 12 per cent. in respect of goods specified in Schedule II,
- 18 per cent. in respect of goods specified in Schedule III,
- 28 per cent. in respect of goods specified in Schedule IV,
- 3 per cent. in respect of goods specified in Schedule V,
- 0.25 per cent. in respect of goods specified in Schedule VI
Additionally, some cesses have also been set out for few products.
Rates for Services:
- 5 per cent. – Rent a cab, job work relating to textiles, GTA service, Print Media advertisement etc.,
- 12 per cent. – Non-A/c Restaurants, Accommodation where tariff is between Rs.1000 to Rs.2500/-, Business class air travel etc.,
- 18 per cent. – General Rate – all services not covered in other rates including specified construction services.
- 28 per cent. – Luxurious hotels, Gambling, Amusement park entry etc.
The detail as to rate of taxation may be determined by referring to Notification No. 1/2017 – CT (R) and 11/2017-CT (R) for the supply of goods and services respectively.
Under all tax laws exemptions are to be read strictly and all conditions thereto should be satisfied. Some exemptions are conditional. The exemption which is unconditional is to be compulsorily availed. The goods which are exempted are set out in schedule – I – notification 1/2017 and services which are exempted have been set out in Notification12/2017 dt. 28.6.17 as amended from time to time.
In GST, the valuation principles under central excise for goods and service tax for services have been adapted with market value concept of Customs added.
The transaction value is to be adopted where the supplier and recipient are not related and the price is the sole consideration. (Section 15) This value needs to be adjusted for aspects which impact the price. The transaction value would include:
- taxes paid other than in GST,
- amounts incurred by the receiver which are in relation of the supply,
- incidental expenses including packing, commission etc. charged by the supplier,
- interest or late fee or penalty for delayed payment of consideration,
- subsidies directly linked to the price other than Central/ State subsidies.
The transaction value (TV) would exclude:
- the discount which is given before or at the time of the supply and
- that which is known at the time of supply (target, quantity discount) provided the recipient has reversed the Input Tax Credit.
Where the TV is not determinable then one would have to refer to the GST Rules 27 to 35. Government has also reserved the right to specify valuation methods. The list of related persons has also been provided.
Valuation Rules (Rule 27- 35)
The valuation rules prescribe different methods for different types of transactions making an attempt to arrive at a fair price (not tainted by relationships and other advantages). Important ones are as under:
NORMAL METHOD TO ARRIVE – ADJUSTED TRANSACTION VALUE (RULE 27)
- When consideration is not wholly in money then the open marketvalue of the supply would be considered. Open market value could be said to be comparable untainted value at the same time.
- Where not possible to get the above value then the value received in money and the money value of other consideration. Example of this could be as under:
- Amortised value of capital goods supplied free of cost (cost/ possible usage)
- Advances impacting the price (Advance for machinery/ working capital). The bank interest saved by the supplier,
- Component supplied free of cost for incorporation. The value of the component,
- Reasonable means to arrive at the advantage can be used.
- Where 2) above not possible then the value of goods or services which are akin. This value may require to be adjusted for realities and maybe subjective.
- Where iii) not possible as 110% of the cost of production or provision of service. (Rule 30)
- Where iv) also not possible then any reasonable means consistent with the above principles. (Rule 31)
Pure Agent Supply (Rule 33)
There are times when the contract could be for supply of some services but could also involve supply of services or goods from other third parties.
Pure agent is one who:
- enters into an agreement to be an agent to incur costs or expenditure while providing the service contracted for,
- does not hold title to the goods or services supplied to the recipient,
- does not use such goods or services for himself or for provision of service of the recipient and
- receives only the actual amount incurred (no margin)
The conditions for excluding value of supply are as under:
- the supplier acts as an agent of the recipient for the supply and payment both received and made on behalf of the recipient,
- the payments made to third parties is separately indicated in invoice of such pure agent
- the above supplies are in addition to services provided on own account.
Examples of such transactions could be as under:
- A Custom House Agent who arranges import may pay port charges, terminal handling charges, rent of plot, pay the customs duties, etc. in addition to his services of providing liaison and co-ordination.
Valuation of Supply to Distinct person (branches/ division) (Rule 28)
In this case the valuation to distinct persons could be the open market value, if not available value of goods or services of like kind and quality and if that is also not possible 110% of cost (Rule 30) or reasonable method (Rule 31)
Further an option of supplier charging 90% of the price charged by the recipient.
A major relaxation is that where the credit is eligible to the recipient, the value declared in the invoice shall be deemed to be the open market value. It is suggested that this relaxation be tempered with reasonableness to avoid disputes.
Valuation of supply through Agent (Rule 29)
In this case on option has been provided for the supply of goods either way of going for the open market value or 90% of the price charged for supply to unrelated parties. If this is not possible then to follow 110% of cost ( rule 30) or reasonable method ( rule 31).
Specific Valuation Methods (Rule 32 Optional)
- For exchange of foreign exchange the value shall be the difference between buying and selling rate as declared by RBI.
If not available then 1% of the value of Indian Rupees received or paid.
Further an yearly option to value at 1% of the gross currency exchanged upto Rs. 1 Lakhs (subject to minimum of Rs 250- If less than 25,000), if more then Rs1,000 + ½ % between 1- 10 Lakhs, if more then 5,000 + 1/10%of amount exceeding 10 lakhs subject to maximum of Rs60,000/-
- For Air travel – 5% of basic fare for domestic or 10% for international fare. Basic fare is the fare used for paying commission in the normal course.
- For Life Insurance Business the value would be arrived at after deducting the investment allocation and where not determinable as in a single premium policy 10% deemed to be value. In all other cases it would be 25% of the 1st premium and 12.5% of the subsequent premiums.
- Resale of second-hand goods by person in that business would be the value calculated as the difference between the purchase and sale price. If the difference is negative, no tax need be paid.
- Physical or digital vouchers value would be the redemption value. (most cases the face value)
In some cases the tax payer may have charged one consolidated price inclusive of tax. This is also called cum tax value. In such cases the value would be determined as under:
Rate is 18 % IGST then = 100×100/118 = 84.47.
INPUT TAX CREDIT (ITC)
The principle of set off is that the GST paid at the earlier stage on supplies received (capital goods, inputs, input services) is allowed as a deduction from the tax payable. In normal businesses the eligible credits are reduced from the cost of procurement/ purchases. In GST the ITC has been expanded partially since there is no indirect tax other than GST. Credit is available unless restricted. To this extent the taxes on taxes is also avoided.
However, where no GST is paid then credit would not be available. The excluded activities where GST is not applicable as on date are:
- Electricity presently a State subject
- Taxes on immovable property also a State subject.
- 5 Petroleum Products which are substantially used in businesses: Petrol, Diesel, Aviation Fuel, Natural Gas
ELIGIBILITY FOR ITC
GST was to completely remove cascading of multi point duty as well as restrictions built over a period of time. In the earlier regimes the Cenvat Credit as well as VAT ITC was restricted for several items. The credit is available subject to conditions as under:
- He is having a tax invoice or other tax paying document (Such as Bill of entry, ISD invoice, self-invoice etc.) which has been uploaded by the supplier,
- He has received the supply or goods or services (except in bill to ship to transactions),
- Tax has been paid on such supply (by the supplier)
- Return is to be furnished by the receiver (GSTR 3B in present scenario),
- He is to pay the supplier within 180 days from the invoice date. If not, credit and interest thereon would be added to his output liability. Credit of tax available on full payment at any later date without the time limitation provided under section 16(4) (Discussed in point 7).
- In regard to capital goods where depreciation is claimed on the GST credit availed, then credit is not available i.e. double benefit cannot be claimed
- The time limit for credit is the due date for filing of the return of September of next financial year or furnishing of the annual return whichever is earlier.
The law also provides for enabling credit of input tax and restrictively capital goods credit in case of various special circumstances such as a composition dealer, a small trader or one who is exempt becoming taxable, one who has taken registration, certificate from a chartered accountant etc. subject to conditions. GST is a procedural law and requires compliance of the rules as prescribed. The vigilant only would be able to avail optimum credit.
Blocked Credits- Section 17(5)
We examine the continuing restriction under section 17(5) of CGST Act and extent briefly as under:
i) Motor Vehicles, vessels, aircraft and Other Conveyances. Exceptions where credit would be available are:
- if used for transportation of goods
- if used for making taxable supplies (only for such service providers) of: further supply (distributor/ lessors of MV); transportation of passengers (bus operators, cab operator) or for imparting training (driving, flying etc.)
Note: The conveyances for transportation of goods could cover cars, buses, boats, airplanes etc. The industries who could claim the credit for transportation of goods could be any who use them for business. Commonly the transportation / logistic industry, construction industry, mining, manufacturing, catering etc. In the past they may not have availed the credit.
The credit of lease of motor vehicles and other credits related to motor vehicles like insurance, repair etc. used in furtherance of business would be available.
ii) Works Contract for immovable property other than plant and machinery or where the service is used further for works contract.
iii) Goods and services for construction of immovable property other than plant and machinery for himself. This means that a builder cannot avail the credit for inputs of a contractor for a building meant for renting or manufacture of taxable goods. However, if the contractor / developer is selling the property (before completion) then he can avail the credits of goods or services used.
iv) Membership of a club, health or fitness centre are barred even if used for furtherance for business.
v) Travel benefits to employees on vacation such as leave or home travel concession
vi) Food, beverages, outdoor catering, beauty treatment, health services, cosmetic/ plastic surgery, lease/rental of vehicles and conveyance unless used for making a further supply in the same category or as an element of composite/ mixed supply and insurance.
vii) Goods or services used for personal consumption.
viii) Goods lost, stolen, destroyed, written off or disposed off by way of free gift or free samples.
The person who has opted for composition would not be eligible for any credit till he opts out at which time he would be eligible for credit of the stocks in hand. Then on resident dealer who imports goods can utilise the credit of such goods if eligible otherwise.
The person who receives a notice consequent to evasion (Sec 74) or transports goods liable to GST (Sec 129) without payment of tax or such goods are confiscated (sec130) shall not be eligible for ITC.
Apportionment of credit
The assessee maybe having non-taxable or exempt supplies or use the goods for non-business purposes or a combination. In such cases he would be eligible for only credit to the extent used for taxable and zero rated ( direct exports and SEZ) supplies. This would be as per the rules in this regard.
The value of exempt supplies would include supplies on which recipient is liable to pay under reverse charge value of securities, sale of land , sale of completed building
For banking, financial institution or a non banking financial company an option of avail 50% of the eligible ITC on capital goods, inputs and input services is available. One can opt for it once a year. This 50% would not apply for transactions within the entity where GST has been paid.
Manner of Utlization of Credit
The input tax credit would be eligible for set off as under:
- The CGST SGST and UTGST paid on supply of service to be set off against the output CGST, SGST and UTGST respectively.
- When an item is procured for resale, then credit of CGST and SGST/ UTGST is available for all items.
- When inputs and consumables are procured for the manufacture of goods on which CGST/ SGST/ UTGST is paid, then credit of CGST and SGST/ UTGST is available for all items.
- SGST/ UTGST would be allowed first to be utilised against SGST/ UTGST and then IGST.
- Similarly, would be allowed first to be utilised against CGST for CGST and then IGST.
- IGST would be allowed for IGST, CGST and then SGST/ UTGST in that order.
The SGST/ UTGST would not be allowed to be adjusted to the CGST and vice versa. This may lead to accumulation of credit in some places.
Place of Supply
Place of Supply (POS) have the twin objective of confirming whether a transaction is deemed to be in India or Outside India as well as determine the State/Union Territory in which the levy accrues. The POS under GST generally follows the destination principle. However, to take care of international best practices as well as practical issues to ensure that the States get their dues, some exceptions are there in goods and bit more in services.
The POS for goods would depend on the location of the supplier as well as where is the place of supply. If in the same State then it would be an intra- State supply (State GST + CGST) ) and if not then inter-State supply ( IGST). Pertinent Sections in CGST = 10-14; and in IGST= 12 & 13.
Time of Supply (TOS)
The time of supply triggers the levy of GST. The law provides that the TOS would be the earliest of payment, delivery of goods / provision of services, invoicing. Court have opined that the most important activity is supply and if there is a conflict then that time may prevail. Some differences have been carved out when dealing with relatives and differing commercial transactions. Some of those specified are as under:
Reverse Charge – 60 days from date of issue of invoice or date of payment. If with related parties then date of recording of supply.
Vouchers – Where supply is identifiable along with the rate – then date of issue of voucher. If not, then the date of redemption.
Interest, Late fee or penalty for delay in payment – On receipt of amount.
In case of non-recording- When return filed or payment made (maybe post an audit or investigation)
Job Work/ Repair
The job work route is followed to a large extent to ensure concentration on core competencies, lower costs for specialised agencies and quality enhancement. Job work is understood as working on goods supplied by the principal. There may be situations where some material is also added by the job worker. Where job worker adds substantial material, the transaction may not be called a job work and it may be advisable to supply on payment of tax and get back on payment of tax. Job worker in this case may need to be registered and avail the credit. Section 143 enables supply of goods for job work without Payment of GST. There are time limits for receipt back for inputs, capital gods except for moulds dies, jigs and fixture. When not received back they would be deemed to have been supplied as on the date of initial supply.
The practical business aspects of directly receiving the inputs, capital goods etc, direct supply to customer after the processing, supply to other job workers have been enabled. Scrap and waste maybe supplied back or disposed of by the job worker on payment of appropriate taxes.
Repairs maybe covered herein but not specifically covered.
Tax Collection at Source- E- Commerce Operator (ECO)
The proliferation of internet and purchase through it in India has been tremendous. Supplies of goods and services using software has been growing exponentially and these transactions need to be taxed in India. There are different types of transactions as under:
- ECO provides a place to meet and supplier supplies goods or services directly to the buyer. ECO will get a commission based on amount of per lead.
- ECO supplies the goods or services to the buyer directly or indirectly and payment is made online to the ECO. If direct, then ECO is a regular supplier. If not, then he would be an operator.
- ECO delivers and collects food, merchandise etc. Here if considered an agent then under GST tax needs to be paid either by the supplier or the ECO.
- There could be many variants of the above.
The intermediary software platform on which the buyer and seller meet and complete a transaction has now been made liable to register if he has a presence in India. The ECO who is not having a presence in India would have to have a representative in India who would need to register. The primary responsibility for payment of GST remains with the supplier.
Under Section 52, the ECO would have to deduct 1% or less from the supplier payment and pay the same to the revenue as Tax Collection at Source. This would help the revenue to track those who transact on these sites.
Considering the many facets of such business including the extra territorial jurisdiction and feasibility of monitoring this provision has been put on hold upto 30.9.2018.
Tax Deduction at Source – Specified Recipients
Section 51 provides similarly that a department of Central/ State government, local authority, Governmental agencies or notified persons shall deduct tax at 1% and pay to Government along with an electronic statement of outward supplies. In the present GST regime, there does not seem to be any reason for this provision to be made applicable. However, once it is notified and then made effective this deduction will have to be done. Presently not applicable till 30.9.2018.
Demand, Interest & Penalties
The tax may at times not be paid, underpaid, credit may not be reversed or partially reversed, refunds maybe excess claimed due to inadvertence, lack of knowledge or intentionally. The tax payer who identifies the non/ short payments etc. could suo moto pay with interest and disclose in his returns. Section 73 sets out the time limit for order to be 3 years form the due date of furnishing annual return or from date of erroneous refund. The show cause notice is required to be issued at least 3 months earlier. In cases of fraud, misstatement, suppression leading to short or non- payment or excess credit or erroneous refund then the period for notice within 6 years of the time limit for the order. The show cause notice is required to be issued at least 6 months earlier. There are other offences specified for transportation and dealing in goods/ services without payment of GST. Since the provisions of demand and recovery are especially harsh, tax compliant assessees may opt for voluntary review of their compliances of get the annual audit of GST done concurrently to avoid interest and penalties.
The notice would need a reply to be made which needs to explain the factual background and the concurrence to the notice or the reasons / ground on which it is not applicable. This would be followed by a personal hearing and on an order dropping the demand or confirming it.
The amount would be recovered by way of voluntary payment or from monies owed to the assessee (bank/ NBFC), by selling goods belonging to assessee, from other person who owe money, as arrears of land revenue through the District Collector or through the magistrate as fine.
Documentation and Records under GST
The registered person should keep and maintain true and correct, accurate accounts / records at his principal place of business. These would cover:
- Production and Manufacture of goods;
- Inward and outward supply of goods or services or both;
- Stock of goods
- Input tax credit availed;
- Output tax payable and paid;
- Separate account of advances received, paid and adjustments made thereto;
- Names and complete addresses of suppliers and recipients of goods or services or both;
- Monthly production details in the case of manufacturers and
- Such other particulars as may be prescribed
In case more than one place of business is specified in the certificate of registration, the accounts relating to each place of business would be kept at such place of business. The accounts and records may be kept and maintained in the electronic form as prescribed.
Invoicing under GST
Invoice is an important part of GST. Sec 31 sets out the timing of the invoice in case of goods and services, continuous supply and revised invoice. The other documents for advance, reverse charge, exception to issue of tax invoice for exempted supplies and composition are also specified.
There is no specific format prescribed in the law for raising an invoice. However, the law prescribes the content in tax invoice as under:
- Name, address and Goods and Services Tax Identification Number of the supplier.
- A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters-hyphen or dash and slash symbolized as “-” and “/” respectively, and any combination thereof, unique for a financial year.
- Date of its issue.
- Name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient.
- Name and address of the recipient and the address of delivery, along with the name of the State and its code, if such recipient is unregistered and where the value of the taxable supply is fifty thousand rupees or more.
- Name and address of the recipient and the address of delivery, along with the name of the State and its code, if such recipient is unregistered and where the value of the taxable supply is less than fifty thousand rupees and the recipient requests that such details be recorded in the tax invoice.
- Harmonised System of Nomenclature code for goods or services.
- Description of goods or services.
- Quantity in case of goods and unit or Unique Quantity Code thereof.
- Total value of supply of goods or services or both.
- Taxable value of the supply of goods or services or both taking into account.
- Discount or abatement, if any.
- Rate of tax (central tax, State tax, integrated tax, Union territory tax or cess).
- Amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess). GST law does not allow all-inclusive price.
- Place of supply along with the name of the State, in the case of a supply in the course of inter-State trade or commerce.
- Address of delivery where the same is different from the place of supply.
- Whether the tax is payable on reverse charge basis; and
- Signature or digital signature of the supplier or his authorised representative.
A few optional exclusion of a. to r. above have been provided for insurers, banking and financial institutions and non-banking financial Companies, goods transport agents and passenger transport.
DEBIT NOTE/ CREDIT NOTE
Debit Notes or Credit Notes are issued when there is a variation in the price and the amount payable by the receiver (buyer) increases or decreases after the invoice is issued.
When the amount payable by the buyer to seller decreases –There can be a change in the value of goods after the goods are delivered and invoice issued by the seller. This can be due to a return of goods or due to the bad quality of the goods delivered, short supply etc. The seller issues a Credit Note as a response or acknowledgment to the debit note.
When the amount payable by the buyer to seller increases-When the value of invoice increases, due to extra goods being delivered or the goods already delivered have been charged at a lower price, a debit note is required to be issued. The Debit Note, in this case, is issued by the seller to the buyer.
The tax liability would be adjusted but no reduction in output tax liability of the supplier would be permitted if the incidence of tax and interest on such supply has been passed on to any other person.
Export /SEZ supply
Exports and supply to SEZ, are called as zero-rated whereby no tax is payable subject to following the procedure contained in the rules. The benefit of availment of input tax and refund of accumulated credit would be available in two ways:
- With payment of taxes utilising the credit
- Without payment of tax
Procedure for export with payment of IGST-
- The assessee has to raise tax invoice mentioning GST rate and what is the tax adjusted.
- Details to be uploaded in GSTR-1 for the period July 2017 and for another period in GSTR-6A made available only to provide export details.
- Based on the details uploaded the officers would correlate the EGM details with customs database and process the refund.
- Later the department may verify the eligibility of credit and call for other required documents.
Procedure for export without payment of IGST-
- the assessee has to obtain the letter of undertaking (LUT). After obtaining LUT, he can supply the goods or services to SEZ unit/Export.
- The assessee has to raise tax invoice without mentioning GST and provide the details in GSTR-3B and GSTR-1,
- Correlate the EGM details with customs database.
Section 2(39) the concept of “deemed exports” has been defined in section 147, which means Government, on the recommendations of the council, notify certain supplies of goods as deemed exports, where goods supplied does not leave India and consideration for such supply is received either in Indian rupees or in any convertible foreign exchange, if such goods are manufactured in India. Supplies to EOU/EHTP/STP/BTP units and supply to advance authorisation or EPCG license holder would be considered as deemed export as per notification no 48/2017-central tax dated 18.10.2017.
Supply goods to merchant export
The merchant exporters have been provided an option due to the refund process not enabled for them.
The following procedure to be followed for charging concessional rate.
- Registered supplier to supply the goods on a tax invoice.
- Registered recipient export the goods within a period of ninety days from the date of issue of tax invoice by the registered supplier.
- The recipient would indicate the GSTIN and tax invoice number of the registered supplier in the shipping bill or bill of export.
- The recipient would be registered with Export Promotion Council or a commodity Board recognized by Dept of Commerce. The recipient would place an order on the registered supplier for procuring goods at concessional rate. Copy of Order would be submitted to jurisdictional tax officer of the registered supplier.
- Recipient would move the goods from place of registered supplier
- Directly to the port, Inland container deports, Airport or Land customs station from where the goods are exported.
- To registered warehouse from where the said goods would be moved to the port Inland container deport, Airport or Land customs station.
- Registered recipient after export of goods would provide a copy of shipping bill or bill of export containing details of GSTIN and tax invoice of the registered supplier.
- Along with proof of export general manifest or export report having been filed with the registered supplier as well as jurisdictional tax officer of such supplier
If Goods are not exported within a period of ninety days from the date of issue of tax invoice the supplier would not be eligible for the deemed export benefit. He has to pay the GST applicable with interest.
Imports under GST
Unser GST the imports of goods qualifies as ‘inter-state supply’ and IGST has to be paid on such import. The import of goods would continue to attract the levy of the customs duty. Moreover, Section 5 of the IGST Act 2017 has adopted the manner of levy, collection of the IGST on import of goods as provided in Section 3 of the Customs Tariff Act, 1975.
The fact that GST was applicable from 1st July required many provisions for enabling continuation of business without impacting or stopping them. The main provisions in transition are briefly explained as under:
- Migration of existing tax payers: All those having a valid PAN were provided a provisional registration and after additional information provided a final registration. Those who did not provide the information got the provisional registration cancelled.
- Carry forward of cenvat by those registered earlier under central excise or service tax as well as ITC under VAT: The compliance under these laws by the unorganised and smaller assessees was quite poor and many made mistakes while filing their form (tran-1) which was closed in November 2017. Courts have interfered and for those who did not file due to issues in uploading have been allowed to file again.
- Balance of Capital goods cenvat credit: This has also been enabled to the extent of credit not carried forward.
- Credit on stocks: The stocks in hand with a trader, manufacturer or service provider would be in available as inputs, semi-finished goods or finished goods. The tax involved in these goods would be eligible for credit subject to conditions. Two schemes were provided for those who had invoices and those not in possession. Large number of SME have not claimed it (trans-1) and it is understood that many have claimed it excessively.
Transition provisions were also there for goods or services in transit, Input Service Distributor balance, centralised service providers, job work, price revisions, refunds, goods on which TDS was deducted under the VAT law etc. The law provided whether the issue would be under the earlier law or GST.