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(PDF) Goods and Services Tax ‘GST’ Revision Notes

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Lesson 1 – An Overview on Goods and Services Tax “GST”

  • GST is one of the most demanding reforms in the field of indirect taxation. GST is an indirect tax which has replaced many indirect taxes like excise duty, service tax, VAT, CST and many other central and state level taxes.
  • In order to make this reform there was a need to amend constitution so that Central and State Government can have power to tax on both goods and services.
  • Taxable event for GST is supply. If any business makes a supply that will be subject to GST provided other conditions are fulfilled.
  • Supply is of two types- intra-state supply and inter-state supply. Supply within same state, there will be two taxes being CGST and SGST and in case of inter-state supply only one tax will be levied that is IGST. Thus, in India we have followed Dual GST Model.
  • Generally, liability to pay GST is on the supplier but in certain circumstances liability to pay GST has been put on Recipient of Supply. This is known as Reverse Charge Mechanism (RCM).
  • In order to provide comfort to small dealers from the complexities of GST a concept known as composition scheme has been introduced (though not new it also existed in earlier laws). Small dealers have been identified on the basis of turnover made by them during the preceding financial year.
  • Central Government has been granted power to grant exemptions either generally or specially in respect of supply of goods or services or both.

 

Lesson 2 – Supply

  • Taxable Event: The taxable event under GST shall be the supply of goods or services or both made for consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’.
  • Scope of supply: Ans. The term ‘supply’ is wide in its import covers all forms of supply of goods or services or both that includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of service. The GST law also provides for including certain transactions made without consideration within the scope of supply.
  • Taxable supply: A ‘taxable supply’ means a supply of goods or services or both which is chargeable to goods and services tax under the GST Act.
  • Composite supply is a supply consisting of two or more taxable supplies of goods or services or both or any combination thereof, which are bundled in natural course and are supplied in conjunction with each other in the ordinary course of business and where one of which is a principal supply. For example, when a consumer buys a television set and he also gets warranty and a maintenance contract with the TV, this supply is a composite supply. In this example, supply of TV is the principal supply, warranty and maintenance service are ancillary
  • Mixed Supply means two or more individual supplies of goods or services or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. For example, a supply of package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juice when supplied for a single price is a mixed supply. Each of these items can be supplied separately and it is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.
  • Treatment of composite supply and mixed supply: Composite supply shall be treated as supply of the principal supply. Mixed supply would be treated as supply of that particular goods or services which attracts the highest rate of tax.
  • Time of supply: The time of supply fixes the point when the liability to charge GST arises. It also indicates when a supply is deemed to have been made. The CGST/SGST Act provides separate time of supply for goods and services.
  • Supply of goods: Section12 of the CGST/SGST Act provides for time of supply of goods. The time of supply of goods shall be the earlier of the following namely,
    1. the date of issue of invoice by the supplier or the last date on which he is required under Section 31, to issue the invoice with respect to the supply; or
    2. the date on which the supplier receives the payment with respect to the supply.

However, vide Notification No. 66/2017-Central Tax dated 15.11.2017, liability to pay tax at the time of receipt of advance has been relaxed in case of goods.

  • Supply of services: Section 13 of the CGST/SGST Act provides for time of supply of services. The time of supply of services shall be the earlier of the following namely,
    1. the date of issue of invoice by the supplier if the invoice is issued within the period prescribed under section 31(2) or the date of receipt of payment whichever is earlier; or
    2. the date of provision of service, if the invoice is not issued within the period prescribed under section 31(2) or the date of receipt of payment whichever is earlier.
    3. the date on which the recipient shows the receipt of services in his books of account, in case where the provisions of clause (a) and (b) do not apply.
  • Value of taxable supply: The value of taxable supply of goods and services shall ordinarily be ‘the transaction value’ which is the price paid or payable, when the parties are not related and price is the sole consideration. Section 15 of the CGST/SGST Act further elaborates various inclusions and exclusions from the ambit of transaction value. For example, the transaction value shall not include refundable deposit, discount allowed subject to certain conditions before or at the time of supply.
  • Job work means undertaking any treatment or process by a person on goods belonging to another registered taxable person. The person who is treating or processing the goods belonging to other person is called ‘job worker’ and the person to whom the goods belongs is called ‘principal’. This definition is much wider than the one given in Notification No. 214/86 – CE dated 23rd March, 1986. In the said notification, job work has been defined in such a manner so as to ensure that the activity of job work must amount to manufacture. Thus the definition of job work itself reflects the change in basic scheme of taxation relating to job work in the proposed GST regime.
  • Electronic Commerce has been defined to mean the supply of goods or services or both, including digital products over digital or electronic network. Electronic Commerce Operator has been defined to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce. The benefit of threshold exemption is not available to e-commerce operators and they would be liable to be registered irrespective of the value of supply made by them.
  • Tax Collection at source: The e-commerce operator is required to collect an amount calculated at the rate not exceeding one percent of the net value of taxable supplies made through it, where the consideration with respect to such supplies is to be collected by such operator. The amount so collected is called as Tax Collection at Source (TCS). However, Section 52 of the CGST Act, 2017 which deals with TCS has not come into force as of yet and GST Council has recommended to keep this provision in abeyance till 31.03.2018.

 

Lesson 3 – Input Tax Credit and Computation of GST Liability

  • Taxes paid on inward supply of inputs, capital goods and services are called input taxes which include Integrated GST, Central GST, State GST or Union Territory GST
  • The credit of these taxes is called input tax credit
  • Under GST, a seamless flow of credit throughout the value chain is available removing the cascading effect of taxes
  • The office of the company which distributes the credit to the beneficiary units on the basis of their previous year turnover is called input service distributor
  • Input tax credit (ITC) is a provision of reducing the tax already paid on inputs, to avoid the cascading effect of taxes
  • It is one of the cutting-edge features available under the GST Law, unavailable in previous regime of indirect taxation
  • Certain conditions need to be fulfilled in order to avail the Input Tax Credit
  • Basic condition for availing Input Tax Credit amounts to payment of GST by the supplier
  • When another person (job worker) undertakes the work of a manufacturer, to whom the goods belong (Principal), is known as job work
  • GST law lays down the conditions for ITC in the case of a job worker
  • There is no offset of ITC available between the CGST and the SGST.
  • General exemption is granted by notification and is available to all persons which may be absolute or conditional and may be total or partial.
  • Specific, also known as ad hoc exemption is granted to persons under circumstances of an exceptional nature by a special order communicated to the party seeking exemption.

 

Lesson 4 – Procedural Compliance under GST

  • Registration: In terms of Section 22 of the CGST/SGST Act 2017, every supplier (including his agent) who makes a taxable supply of goods and / or services which are leviable to tax under GST law, and his aggregate turn over in a financial year exceeds the threshold limit of twenty lakh rupees shall be liable to register himself in the State or the Union territory, as the case may be, from where he makes the taxable supply.

In case of eleven special category states (as mentioned in Art.279A(4)(g) of the Constitution of India), this threshold limit for registration liability is ten lakh rupees.

  • Aggregate Turnover: It includes the aggregate value of all taxable supplies, all exempt supplies, exports of goods and/or service and all inter-state supplies of a person having the same PAN.
  • Compulsory Registration: The following categories of persons are required to be registered compulsorily irrespective of the threshold limit:
    1. persons making any inter-State taxable supply, except persons making inter-state supply of certain handicraft goods, and services;
    2. casual taxable persons except persons making supply of certain handicraft goods;
    3. persons who are required to pay tax under reverse charge;
    4. persons who are required to pay tax under sub-section (5) of section 9;
    5. non-resident taxable persons making taxable supply;
    6. persons who are required to deduct tax under section 51;
    7. persons who make taxable supply of goods or services on behalf of other registered taxable persons whether as an agent or otherwise;
    8. Input service distributor (whether or not separately registered under the Act);
    9. persons who supply goods, other than supplies specified under Section 9(5), through such e-commerce operator who is required to collect tax at source under section 52;
    10. every electronic commerce operator;
    11. every person supplying online information and data base retrieval services from a place outside India to a person in India, other than a registered person.
  • Time Limit is within thirty days from the date on which he becomes liable to registration.
  • An e-way bill is a document required to be carried by a person in charge of the conveyance carrying any consignment of goods of value exceeding fifty thousand rupees as mandated by the Government in terms of Section 68 of the Goods and Services Tax Act read with Rule 138 of the rules framed thereunder. It is generated from the GST Common Portal for eWay bill system by the registered persons or transporters who cause movement of goods of consignment before commencement of such movement.
  • TCS: The e-commerce operator is required to collect an amount calculated at the rate not exceeding one percent of the net value of taxable supplies made through it, where the consideration with respect to such supplies is to be collected by such operator. The amount so collected is called as Tax Collection at Source (TCS). However, Section 52 of the CGST Act, 2017 which deals with TCS has not come into force as of yet and GST Council has recommended to keep this provision in abeyance till 31.03.2018.
  • Filing of Return: Every person registered under GST will have to file returns in some form or other. A registered person will have to file returns either monthly (normal supplier) or quarterly basis (Supplier opting for composition scheme). An ISD will have to file monthly returns showing details of credit distributed during the particular month. A person required to deduct tax (TDS) and persons required to collect tax (TCS) will also have to file monthly returns showing the amount deducted/collected and other specified details. A non-resident taxable person will also have to file returns for the period of activity undertaken.
  • “Refund” includes, (a) any balance amount in the electronic cash ledger so claimed in the returns, (b) any unutilized input tax credit in respect of (i) zero rated supplies made without payment of tax or, (ii) 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), (c) tax paid by specialized agency of United Nations or any Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries on any inward supply.
  • The value of taxable supply of goods and services shall ordinarily be ‘the transaction value’ which is the price paid or payable, when the parties are not related and price is the sole consideration. Section 15 of the CGST/SGST Act further elaborates various inclusions and exclusions from the ambit of transaction value. For example, the transaction value shall not include refundable deposit, discount allowed subject to certain conditions before or at the time of supply.
  • Audit: There are three types of audit prescribed in the GST Act(s) as explained below:
    1. Audit by Chartered Accountant or a Cost Accountant: Every registered person whose turnover exceeds Rs. Two crore, shall get his accounts audited by a chartered accountant or a cost accountant. (Section 35(5) of the CGST/SGST Act)
    2. Audit by Department: The Commissioner or any officer of CGST or SGST or UTGST authorized by him by a general or specific order, may conduct audit of any registered person. The frequency and manner of audit will be prescribed in due course. (Section 65 of the CGST/SGST Act)
    3. Special Audit: If at any stage of scrutiny, inquiry, investigations or any other proceedings, if department is of the opinion that the value has not been correctly declared or credit availed is not with in the normal limits, department may order special audit by chartered accountant or cost accountant, nominated by department. (Section 66 of the CGST/SGST Act).

 

Lesson 5 – Demand and Recovery, Advance Ruling, Appeals and Revision

  • The liability for payment of GST lies on the taxpayer and it is payable on self-assessment basis.
  • If such liability is determined wrongly, subsequent to its identification, demand may be raised.
  • Section 73 deals with without fraud misstatement of facts and section 74 deals with wilful or fraud misstatement of facts
  • In section 73, proper officer can issue notice within 3 years of the due date of furnishing the annual return whereas in section 74, he can issue notice within 5 years of due date of furnishing of annual return.
  • If the service of notice or issuance of order is stayed by an order of Court or Appellate Tribunal, the period of stay will be excluded in computing the period 3 years or 5 years – the time limit for issue of notice or adjudication.
  • Where a person, after any amount has become due from him, creates a charge on or parts with the property belonging to him or in his possession by way of sale, mortgage, exchange, or any other mode of transfer whatsoever of any of his properties in favour of any other person with the intention of defrauding the Government revenue, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the said person
  • A taxpayer can approach Authority of Advance Ruling to get clarification for any specific matter related to supply of goods & services.
  • The main objective of Advance Ruling is to provide certainty in advance for tax liability and to reduce litigation and other disagreements.
  • The taxpayer has the right to make an appeal against the order passed by proper officer.
  • Appeal Mechanism – Appellate Authority > Tribunal > High Court > Supreme Court.
  • The taxpayer seeking appeal has to pre-deposit specified amount before filing an appeal.

 

Lesson 6 – Inspection, Search, Seizure, Offences & Penalties

  • Inspection can be carried out by an officer of CGST/SGST only upon a written authorization given by an officer of the rank of Joint Commissioner or above. A Joint Commissioner or an officer higher in rank can give such authorization only if he has reasons to believe that the person concerned has done one of the following:
    • suppressed any transaction of supply;
    • suppressed stock of goods in hand;
    • claimed excess input tax credit;
    • contravened any provision of the CGST/SGST
    • Act to evade tax;
    • a transporter or warehouse owner has kept goods which have escaped payment of tax or has kept his accounts or goods in a manner that is likely to cause evasion of tax.
  • Search and Seizure: An officer of the rank of Joint Commissioner or above can authorize an officer in writing to carry out search and seize goods, documents, books or things. Such authorization can be given only where the Joint Commissioner has reasons to believe that any goods liable to confiscation or any documents or books or things relevant for any proceedings are hidden in any place.
  • Reason to believe is to have knowledge of facts which, although not amounting to direct knowledge, would cause a reasonable person, knowing the same facts, to reasonably conclude the same thing. As per Section 26 of the IPC, 1860, “A person is said to have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing but not otherwise.” ‘Reason to believe’ contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration. It has to be and must be that of an honest and reasonable person based on relevant material and circumstances.
  • Confiscation of Goods: As per section 130 of SGST/SGST Act, goods become liable to confiscation when any person does the following:
    • supplies or receives any goods in contravention of any of the provisions of this Act or rules made thereunder leading to evasion of tax;
    • does not account for any goods on which he is
    • liable to pay tax under this Act;
    • supplies any goods liable to tax under this Act
    • without having applied for the registration;
    • contravenes any of the provisions of the CGST/ SGST Act or rules made thereunder with intent to evade payment of tax.

Document required to be carried during transport of taxable goods?

    • Under section 68 of CGST /SGST Act, a person in charge of a conveyance carrying any consignment of goods of value exceeding a specified amount may be required to carry a prescribed document as prescribed in the E way Bill Rules.
  • Arrest of the person: The Commissioner of CGST/SGST can authorize a CGST/SGST officer to arrest a person if he has reasons to believe that the person has committed an offence attracting a punishment prescribed under section 132(1) (a), (b), (c), (d) or Sec 132(2) of the CGST/SGST Act. This essentially means that a person can be arrested only where the tax evasion is more than 2 crore rupees or where a he has been convicted earlier under CGST Act.

 

Lesson 7 – Compliance Rating, Anti-profiteering, GST Practitioners, Authorised Representative, Professional Opportunities

  • Compliance Rating in GST seeks to bring transparency to the entire GST compliances and administration by way of assigning compliance ratings.
  • All registered taxpayers will be publically rated according to how they comply with GST regulations.
  • If there is reduction in rate of tax on the supply of goods or services or benefit of input tax credit is available under GST, then, a registered person must pass on the benefit by reduction in prices to the consumer.
  • Anti-profiteering measure would obligate the businesses to pass on the cost benefit arising out of GST implementation to their customers.
  • Government has notified anti-profiteering authority (APA) which will check any undue increase in prices of products of companies under GST.
  • It will work in a three-tier structure – a Standing Committee on Anti-profiteering as well as State-level Screening Committees.
  • GST Practitioner is a professional who can prepare returns and perform other activities on the basis of the information furnished to him by a registered person.

 

Lesson 8 – Integrated Goods and Services Tax (IGST)

  • IGST means tax is on the supply of any goods and/ or services in the course of inter-State trade or commerce.
  • A supply of goods and/or services in the course of inter-State trade or commerce shall be treated where the location of the supplier and the place of supply are in different States, two different union territory or in a state and union territory. Further import of goods and services, supplies to SEZ/SEZD shall not be treated as an intra state supply.
  • Imports/exports shall be treated as inter-state supplies. Exports of goods and services will be zero rated. Similarly, the supplies to SEZ units or developer shall be zero rated.
  • The GST is the destination-based tax i.e. at the point of consumption place. So, place of supply provision determines the place i.e. taxable jurisdiction where the tax should reach.
  • The place of supply determines whether a transaction is intra-state or inter-state. The place of supply of goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.

 

Lesson 9 – Union Territory Goods and Services Tax (UTGST)

  • In case of intrastate supply with in a Union Territory a tax shall be levied known as UTGST; in addition to it, CGST will also be levied at an equal rate.
  • UTGST Act, 2017 has been divided in to 9 chapters containing 26 sections. Central Government has also notified various Rules for different Union Territories.
  • Section 8 empowers Central Government to grant exemption from GST on supply of Goods or Services or both, either generally or specifically and either absolutely or subject to conditions.
  • Section 9 provides manner of utilisation of credit of IGST, UTGST and CGST.
  • Section 3 to 6 and 11 to 13 are section relating to administrative power of Central Government for enforcement of UTGST Act, 2017.
  • Further Section 14-16 deals with Advance Ruling and appeal against advance ruling
  • Since GST has replaced old indirect taxes so there was a need to make provisions from migrating from existing law to new law. Section 17 to 20 makes provisions for transitional arrangements.
  • Section 21 specifically provides that provisions of CGST Act, 2017 relating to certain matters will be applicable in case of UTGST.

 

Lesson 10 – GST Compensation to States

  • Goods and Services Tax (Compensation to States) Act, 2017 was enacted to levy Compensation cess for providing compensation to the States for the loss of revenue arising on account of implementation of the goods and services tax with effect from the date from which the provisions of the Central Goods and Services Tax Act is brought into force (01/07/2017), for a period of five years or for such period as may be prescribed on the recommendations of the GST Council.
  • The compensation cess on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975, at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962, on a value determined under the Customs Tariff Act, 1975.
  • Compensation Cess will not be charged on goods exported by an exporter under bond and the exporter will be eligible for refund of input tax credit of Compensation Cess relating to goods exported.
  • Compensation cess shall not be leviable on supplies made by a taxable person who has decided to opt for composition levy.
  • The input tax credit in respect of compensation cess on supply of goods or services can be utilised only towards payment of the compensation cess on supply of goods or services.
  • In case the compensation cess is chargeable on any supply of goods or services or both with reference to their value, then for each such supply, the value has to be determined under section 15 of the Central Goods and Services Tax Act, 2017.
  • Laws and Rules applicable: The provisions of the Central Goods and Services Tax Act, 2017 and the rules made thereunder, including those relating to assessment, input tax credit, non-levy, short-levy, interest, appeals, offences and penalties, shall apply in relation to the levy and collection of the cess on the intra-State supply of goods and services.
  • In case of inter-State supplies the provisions of the Integrated Goods and Services Tax Act, and the rules made thereunder will apply.
  • The compensation cess will be collected on the supply of goods and or services or both, specified in the Schedule to the Act, till 1st July 2022. The cess will compensate the states for any revenue loss on account of implementation of GST.
  • A Fund Known as GST Compensation Fund will be set up to which amount of cess levied and collected u/s 8 of the Act and other sums will be credited. This fund will be used to pay compensation to the States losing Revenue on account of implementation of GST Laws.
  • GST (Compensation to States) Act, 2017 also makes provision for calculating loss of revenue to the States on account of implementation of GST. Base year has been assumed to be 2015-16 and projected growth rate for calculating projected revenue is 14% p.a.

 

Lesson 11 – Industry/ Sector Specific Analysis

  • Services of medical consultancy and health care including regular checks- up and treatments with and without admitting a patient in a hospital are considered as health care services and are exempted from the levy of GST.
  • Medical services not for the purpose of curing disease but for the purpose of enhancement of beauty or physical appearance of the person shall be liable to GST.
  • Services provided by the cord blood banks by way of preservation of stem cells or any other service in relation to such preservation are exempt from GST.
  • Artificial limbs are liable to 5% GST.
  • Outdoor Catering Services are liable to GST @ 18%.
  • Tax rate for all AC and non-AC restaurants is 5% without ITC except in starred hotels where the tariff is Rs 7,500 or more. The rate for restaurants in starred hotel will remain 18 per cent along with the benefit of input tax credit.
  • Input tax paid on “food and beverages and outdoor catering” shall be allowable only if the same are used for making taxable “outward supply”.
  • ‘Education services’ which are generally exempt have been defined as services by way of –
    • Pre-school education and education up to higher secondary school or equivalent;
    • Education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force; or
    • Education as a part of an approved vocational education course.
  • GST exemption on input services is available only to schools (from pre-school upto higher secondary school or its equivalent).
  • The scope of ‘service’ in GST regime is very wide as it has been defined as ‘anything other than goods is service’. Thus, if it is not a ‘good’, it is a service.
  • Goods is defined in section 2(52) of the CGST Act, 2017 as every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
  • Zero rated supply’ means any of the following taxable supply of goods and/or services, namely –
    • export of goods and/or services, or
    • supply of goods and/or services to a SEZ developer or an SEZ unit.
  • Export of goods means taking goods out of India to a place outside India.
  • Export of services means the supply of any service when:
    • the supplier of service is located in India,
    • the recipient of service is located outside India,
    • the place of supply of service is outside India,
    • the payment for such service has been received by the supplier of service in convertible foreign exchange, and
    • the supplier of service and recipient of service are not merely establishments of a distinct person.
  • Supply of goods and/or services to the SEZ units or Developers would be considered as zero-rated supply but on other hand, supply of goods and/or services by the SEZ units or Developers from SEZ to DTA would be covered under the normal course of supply. Accordingly, such unit or developer will have to pay GST at the prescribed rates.

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