GOODS & SERVICES TAX

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By

CA. Sanjay M Dhariwal

What is GST?

Goods and Services Tax (GST) is by far one of the most awaited tax reforms in the country. GST is “one indirect tax” for the whole nation, which will make India One Unified Common Market.

– “One Nation One Tax”

It is a Single Comprehensive Tax on the supply of goods and services across India, right from the Manufacturer to the Consumer.

Credits of Input Taxes paid at each stage will be available in the subsequent stage of Value Addition, which makes GST essentially a tax only on Value Addition at each stage.

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GST IS A DESTINATION/ CONSUMPTION BASED TAX AND NOT A ORIGIN BASED TAX

GST is said to be Destination based or Consumption based tax. Hence, the place of consumption will decide the State to which, tax would accrue.

Unlike Origin based tax (also known as production tax) in existing which is levied where goods or services are produced.

For Example:

Material is transferred from Goa to Bangalore.

Presently the Tax revenue would accrue to origin state i.e. Goa

but now in GST regime, it will accrue to the state where material is consumed i.e. Karnataka

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LEVY OF GST GST would be levied on ‘supply’ of goods and services and hence the present prevalent concepts of levy i.e.,

Excise on manufacture,

VAT on sales,

Central sales tax on sales,

Service tax on services,

Entry tax on entry of goods in local area would no longer be relevant.

Therefore, supply will hold the greatest significance and shall be an important event in determining the taxability of all transaction whether commercial or otherwise under the GST regime.

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SECTION 7 OF THE CGST ACT 2017- CONCEPT OF SUPPLY

Supply includes:

a) All forms of supply of goods or services or both such as:

1. Sale 5. License

2. Transfer 6. Rental

3. Barter 7. Lease

4. Exchange 8. Disposal

Made or agreed to be made for a consideration by a person in the course or furtherance of business.

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SUPPLY CONTD..

b) Import of services for a consideration whether or not in the course or furtherance of business;

c) The activities specified in Schedule I, made or agreed to be made without a consideration; and

d) The activities to be treated as supply of goods or supply of services as referred to in Schedule II.

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Schedule III – Neither a supply of goods nor a supply of Services

Services by Employer – Employee

Services by Courts/Tribunals

Functions performed by Members of Parliament/State Legislature etc

Services of funeral, burial, crematorium, mortuary including transportation of the deceased

Sale of Land and Building (except Construction Services)

Actionable Claims other than lottery, betting and gambling

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Continued…

An employer and employee are treated as “related persons” and hence any supply of goods or services by employer to employee without consideration would be considered as supply as per schedule I.

However, gifts not exceeding Rs.50,000 in value in a financial year by an employer to employee shall not be treated as supply of goods or services or both.

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As defined in section 2(52) of CGST Act, 2017

“Goods” means 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;

DEFINITION OF GOODS

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■ As defined in section 2(102) of CGST Act, 2017

Services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

DEFINITION OF SERVICES

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Definition of “Goods” and “Services” Goods means every kind of movable property and:

• Includes actionable claim

• Excludes money and securities

Services means anything other than goods :

• Includes transactions in money – in relation to use / conversion

• Excludes money and securities

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The dispute between supply of service and sale of goods as in the present regime will have lesser relevance as the taxes will be the same and CENVATable

The tax paid on services will be allowed as credit for output tax paid on goods.

Even though the law says that dispute between goods and services will fade away, still there will be, different methods while determining the point of taxation.

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Is there a need for differentiating a supply into goods or service?

The charging section is the same for goods or services or both.

There is dilution in the need for differentiating a supply into goods or services.

But the need for classification still continues to exist.

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Different rate of tax and classification rule for goods and services:

The goods are to be classified as per HSN codes and services are to be classified as per SAC terminology. These codes are to be mentioned over invoices also. Moreover the rate of taxing goods and/ or services are different and hence, difference in amount of liability to pay tax. Hence, there is a requirement to classify a supply between goods or services as per rules mentioned in sch. II of the revised model GST law.

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■ GST being destination based tax on consumption and hence tax revenue shall go to the state where goods / services are consumed and hence difference provisions are made under law for place of supply as to goods on one hand and place of supply on the other.

■ All transaction including composite transactions has been considered either as goods or as services under schedule II of the GST Law.

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Different place of supply provisions as to goods /

services:

Illustration Avoid mal classification between services

Suppose a dealer sells an air conditioner and also provides installation and other post sales services.

Under the GST structure a rate of 28 % will apply to the former and 18% to the latter.

This immediately creates an incentive for the dealer to allocate the cost of the air conditioner towards the service he is providing.

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WHAT WILL NOT BE RELEVANT ON IMPLEMENTATION OF GST?

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The concept of two person or one person to another will not hold good.

Distinct Person- One PAN, Multiple Registrations.

■ As per Section 25 (2) of the CGST Act every person shall obtain one registration per State. Proviso to section 25(2) provides that a person having multiple business verticals may obtain separate registration for each business vertical in the State.

■ As per section 25(4), place of business in one State where registration is obtained and place of business in other State where registration is obtained will be treated as distinct person

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Continued…

For Example: If a person has a place of business in Karnataka for which registration has been obtained and another place of business of the same person in Maharashtra with registration then such places of business will be considered as Distinct Person.

Registration obtained by a person in a state for his place of business from where there is a taxable supply and has an office in another state where registration is not obtained then as per section 25(5) both the establishments will be treated as Distinct Person.

Unlike in Existing Law branch transfer is not considered as Distinct Person.

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Tax at the point of manufacture

The meaning of the term “manufacture” comes with a great deal of significance in the current indirect tax regime, given that chargeability excise duty relies solely on whether an activity results in manufacture. However, in the GST regime, the triggering taxable event is a “supply” and tax is leviable whether or not the supply followed ‘manufacture’ of goods. Hence, the term loses its significance in the GST regime.

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Tax only on transfer of property

■ Under Existing Law only when the transfer of property took place, the transaction will be taxed.

■ The above sentence does not hold good under GST since, the supply includes Rent and lease.

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Retention of tax collected by originating state

In existing law, the tax will be retained by the originating state.

Under GST, the consumption state will retain the tax.

Hence, manufacturing state will lose and the consumption state will gain on the revenue.

The Tax Chases The Goods !

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Inter State vs. Intra State

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Section 7(1) of IGST Act, 2017 -INTER STATE SUPPLY

Supply of Goods or supply of Services, where the location of the supplier and the place of supply are in:

(a) two different States;

Punjab & Uttar Pradesh

(b) two different Union territories; or

Daman & Chandigarh

(c) a State and a Union territory,

Mumbai(Maharashtra) & Andaman

shall be treated as a supply of goods in the course of Inter-state trade or commerce

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Section 7(2) of IGST Act, 2017 - IMPORT OF GOODS

Supply of Goods or Services imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce

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SPECIAL CIRCUMSTANCES UNDER INTER STATE SUPPLY

According to section 7(5) of IGST Act, 2017;

Supply of Goods or Services or Both

(a) when the supplier is located in India and the place of supply is outside India;

Hyderabad to New York

(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or

Mumbai to SEZ

SEZ to DELHI

shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

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Residual Provision

According to section 7(5) of IGST Act, 2017;

(C) Supply of Goods or Services or Both in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

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Section 8 of IGST Act, 2017 - INTRA STATE SUPPLY- GOODS

Supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply

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SUPPLY OF GOODS NOT TO BE TREATED AS INTRA-STATE SUPPLY [Sec 8(1) of IGST Act, 2017]

■ Supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;

■ Goods imported into the territory of India till they cross the customs frontiers of India; or

■ Supplies made to a tourist

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INTRA STATE SUPPLY- SERVICES [Sec 8(2) of IGST Act, 2017]

supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply:

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SUPPLY OF SERVICES NOT TO BE TREATED AS INTRA-STATE SUPPLY [Sec 8(2) of IGST Act, 2017]

The Intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.

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Example – Intra State

A dealer in Karnataka sold goods to the consumer in Karnataka worth Rs. 10,000. The Rate of GST is 18% comprising of CGST rate of 9% and SGST rate of 9%, in such case the dealer collects Rs. 1800 and Rs. 900 will go to the central government and Rs. 900 will go to the Karnataka government.

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Example – Inter State

A dealer in Karnataka had sold goods to a dealer in Maharashtra worth Rs. 1,00,000. The Rate of GST is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such case the dealer has to charge Rs. 18,000 as IGST. This IGST will go to the Centre.

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TAXABILITY UNDER GST

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TRANSACTIONS SGST CGST IGST(SGST+CGST)

Intra – State Supplies of Goods and Services

×

Inter – State Supplies of Goods and Services

× × Exports (zero – rated) × × Imports of Goods and Services × ×

MAJOR TAXES BEING SUBSUMED (ABSORBED) INTO ONE TAX

In the GST regime all the major taxes of the state and the center will be absorbed into one tax.

This means that these existing taxes will lose their existence whereas there are a few taxes which will not get subsumed and will still continue to be levied as they are now.

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Central Excise Duty

Additional Excise Duties

Service Tax ACD (CVD) -

Customs

SAD - Customs

Central Taxes

VAT Entry tax Luxury tax Cesses and Surcharges

Entry tax not in lieu of

Octroi State

Taxes

Sales Tax Entertainment

Tax*

Taxes on lottery

THE CHART BELOW SHOWS THE TAXES THAT ARE SUBSUMED

*In case of Entertainment tax only the taxes collected other than the local bodies will be

subsumed.

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CST

TAXES NOT SUBSUMED BY GST – CENTRE

■ Basic Customs Duty

■ Customs Cess

■ Taxes other than stamp duties on transactions in stock exchanges

■ Rates of stamp duty in respect of bills of exchange, cheques, etc.,

■ Central Cess and surcharge related to Non-GST goods

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TAXES NOT SUBSUMED BY GST- STATE

■ State Excise Duty on alcohol, opium, Indian hemp, etc.,

■ Electricity Duty

■ Tolls taxes

■ Tax on goods and passengers carried by road or on inland waterways

■ Tax on vehicles

■ State Cesses& surcharges applicable to non GST goods

■ Taxes on Land and Buildings

■ Tax on Mineral rights (Royalty paid on mining)

■ Profession Tax

■ Stamp duty in respect of documents other than those specified in List I

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ADMINISTRATION OF GST

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DUAL CONTROL BY STATE & CENTRE

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The dual control means on every supply made the center and the state will have equal right.

THE ADMINISTRATION OF GST

A long standing issue about the dual control on the transaction was resolved by taking the annual turnover as the base.

Taking the turnover as the base the number of assesses will be divided as below 1.5crores and above 1.5crores.

Of the assessee falling below the annual turnover of 1.5 crores the revenue of 90% of such assessee will go to the state government and the 10% will be passed on to the Centre whereas assessee having turnover of above 1.5 crores, assessee will be divided equally among the center and the state.

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HOW WILL THE ASSESSES BE DISTRIBUTED?

The assessee will be bifurcated based on some adhoc numbers and this would get shuffled every year or block of years. This would give rise to certain administrative issues for previous period assessments, demands recoveries etc.,

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RATES UNDER GST

GST means one nation one tax, but this fundamental concept of GST is defeated as we already have rates ranging from 0-40% for a variety of goods and services and few indirect taxes being kept away from GST.

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RATES UNDER GST

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*CESS will be levied along with rates of taxes as specified

Anti Profiteering Clause (Sec 171 of the CGST Act, 2017)

On GST implementation the cascading effect of the taxes will diminish due to the seamless credit under the regime.

Also there is a possibility that the GST rates on certain products and services could be less than the current rates of taxes.

In such a scenario to ensure that the benefit is passed on to the final consumer, it is proposed to have a anti profiteering clause in the GST law.

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SECTION 8 OF THE CGST ACT 2017 - CONCEPT OF COMPOSITE & MIXED

SUPPLY

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COMPOSITE SUPPLY

Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.[Sec 2(30)]

Composite supply will be taxed at the rate of tax applicable to the principal supply of such composite supply

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COMPOSITE SUPPLY CONTD..

For Example: Where goods are packed, and transported with insurance, the supply of goods including packing materials, transport and insurance in a composite supply.

Insurance, transport cannot be done separately if there are no goods to supply.

Thus in this case the supply of goods is the principal supply.

For Example: Booking train tickets – You are booking a Rajdhani train ticket which includes meal.

It is a bundle of supplies. It is a composite supply where the products cannot be sold separately.

You cannot buy just the train meal and not the train ticket. The transportation of passenger is, therefore, the principal supply.

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MIXED SUPPLY

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. [Sec 2(74)]

Mixed supply will be taxed at the highest rate applicable to any of the supply forming a part of the mixed supply.

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MIXED SUPPLY CONTD..

For Example: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply.

All can be sold separately.

Assuming aerated drinks have the highest GST rate; aerated drinks will be treated as principal supply for the purpose of levy of taxes

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REVERSE CHARGE MECHANISM (UNREGISTERED DEALER PURCHASES)

Reverse charge means, the recipient of goods or services or both will be liable to pay tax to the government

Reverse charge will come into picture when the supplier is not registered and the recipient is registered i.e., the unregistered dealer purchases.

Also by notification, government may specify categories of goods or services or that will be charged to tax under the reverse charge.

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Illustration 1

Mr. B purchased goods from Mr. A (Unregistered Dealer). What will be the tax implication on the said transaction? If the tax is payable, then who will discharge the liability?

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Answer to illustration 1

Mr. A is not registered in GST as his aggregate turnover of taxable supplies is below threshold limit. Mr. B purchased goods from Mr. A. In such case, Mr. A would be required to pay tax under reverse charge on value of such goods.

It therefore appears that, threshold exemption for not-obtaining registration given under section 22(1) is only an administrative relief given to small business entities and it would not render the supplies made by them exempt.

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Illustration 2

Mr. S a Composition Dealer purchased goods from Mr. P (Unregistered Dealer). What will be the tax implication on the said transaction? If the tax is payable, then who will discharge the liability?

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Answer to illustration 2

Mr. S, a taxable person registered under Composition Scheme is obligated to pay tax under normal rates in respect of supply of goods or services or both received by him from Mr. S, an unregistered dealer, failing which benefit of composition would not be applicable to him.

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Illustration 3

Suppose, you purchase a cup of tea from a tea vendor outside your office who is an unregistered dealer.

Would you pay tax on reverse charge for the expense occurred on a cup of tea?

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SECTION 9 OF THE CGST ACT 2017 - THE CHARGING SECTION

Tax shall be levied on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the transaction value (as per sec 15) and at such rates not exceeding twenty per cent shall be paid by the taxable person

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CHARGING SECTION CONTD..

■ As per the charging section tax will be levied on the transaction value of goods or services or both supplied. The rate of tax will be notified. The maximum rate of tax applicable will be 20%.

■ The maximum rate of the tax will be 20% of CGST & 20% SGST.

■ Petrol for now will remain outside the ambit of GST. But soon there will be a notification which will bring petrol under the net of GST.

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SECTION 9 OF THE SGST ACT 2017 - THE CHARGING SECTION

Tax shall be levied on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the transaction value (as per sec 15) and at such rates not exceeding twenty per cent shall be paid by the taxable person

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SECTION 5 OF IGST ACT 2017 – CHARGING SECTION

On Interstate supplies IGST will be levied at a rate not exceeding 40%

On goods imported into India IGST will be levied in accordance with Section 3 of customs tariff act

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COMPOSITION UNDER SECTION 15 OF KVAT ACT, 2003

Following dealers are eligible to opt for composition scheme:

a. Dealer whose total turn over does not exceed Rs. 50 Lakhs in a year.

b. Dealer executing works contract.

c. Hotelier, caterer, restaurateur [dealer running sweet meat stall or ice cream parlor or bakery].

The Act provides composition tax rate not exceeding 5%.

Presently the tax rate is 4%.

The section 15 of KVAT Act, 2003 restricts the dealer opting for composition scheme from making interstate purchases however no such restriction is placed on dealer executing works contract under composition scheme.

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Existing Aggregate Turnover

Total Turnover= Taxable Sales + Non taxable sales + Interstate purchase or sale + Export + Import + Stock Transfer + URD purchases of a dealer at all the places of business in the state.

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SEC 10 OF THE CGST ACT 2017 - CONCEPT OF COMPOSITION LEVY

A composition levy schemes is an option available to the registered person whose aggregate turnover in the preceding financial year does not exceed 75 lakh rupees. Aggregate turnover for the purpose will be as defined under section 2(6).

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Note: As per discussions in the16th GST Council Meeting held on 11th June, 2017 the limit has been revised to 75 lakhs from 50 lakhs.

AGGREGATE TURNOVER UNDER GST

■ Aggregate turnover =Taxable supplies + Exempt supplies + Exports + Interstate supplies. Doesn’t include supplies on which tax is payable on RCM.

■ Taxable supply =Supplies leviable to tax under GST.

■ Exempt supply = Supplies taxable at NIL rate + Supplies exempt from tax through notifications [u/s 11 of CGST Act or u/s 6 IGST Act] + Nontaxable supply

■ Nontaxable supply = Supplies not leviable to tax under GST.

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RATES UNDER THE COMPOSITION LEVY

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CATEGORY CGST(%) SGST(%) TOTAL GST(%)

MANUFACTURER 1% 1% 2%

HOTELIER 2.50% 2.50% 5%

TRADERS 0.50% 0.50% 1%

ELIGIBILITY FOR COMPOSITION SCHEME

■ The registered person shall be eligible to opt for the composition scheme if: – He is engaged in the supply of services of composite

nature of food or any other article for human consumption (except liquor / Alcohol).

– He is not engaged in making any supply of goods which are not levied to tax under this Act

– He is not engaged in making any inter-State outward supplies of goods

– He is not engaged in any inter-state purchases.

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CONTD..

– He is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and

– He is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.

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CONTD..

– The option of composition tax scheme shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit of Rs 75 lakhs. CSGT, IGST , UTGS & SGST will not be undivided for the computation of aggregate turnover

– A taxable person who opts for the composition levy scheme shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

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COMPOSITION SCHEME ANALYSIS

■ Liquor for human consumption is not leviable to tax under the GST law, Hence a liquor dealer cannot opt for a composition scheme under the GST law.

■ A petroleum dealer who satisfies the conditions mentioned in composition levy scheme can opt for the scheme as petroleum products are leviable to tax under the GST law, though not levied initially.

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Illustration

If a taxable person has multiple business verticals and if he has opted for separate registrations for each such vertical, composition scheme would become applicable for all the business verticals and it cannot be applied for select verticals only.

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Example

If a taxable person has the following businesses separately registered:

— Sale of footwear (Registered in Karnataka)

— Sale of mobiles (Registered in Karnataka)

— Franchisee of McDonalds (Registered in Kerala)

Can the dealer opt for composition only for sale of mobiles?

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Answer

In the above scenario, the composition scheme would be applicable for all the 3 units. Taxable person will not be eligible to opt for composition scheme only for sale of footwear and sale of mobiles and opt to pay taxes under the regular scheme for franchisee of McDonalds.

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LACUNA OF COMPOSITION SCHEME OF THE GST LAW

■ ST/ Central Excise/ VAT not covered for exclusion of turnover purpose of previous year

■ Sales returns not covered

■ Service Providers are not covered(expect for hoteliers), If there is a dealer in both with goods and services then he will not be covered

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FEATURES OF THE SCHEME

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ONE PAN

(Many

Registration)

EITHER ALL FALL UNDER THE COMPOSITION

SCHEME

OR

NONE FALL UNDER COMPOSITIONS CHEME

A DEALER UNDER COMPOSITION SCHEME IS NOT ALLOWED TO TAKE

CREDIT OF INPUT TAXES PAID.

HE SHALL NOT COLLECT THE TAXES PAYABLE UNDER THE COMPOSITION

SCHEME

IF HE IS FOUND NOT

ELIGIBLE TAX PENALTY

IN ADDITION TO COMPOSITION RATE OF TAX ALSO HAVE TO PAY TAX ON URD

PURCHASES

Schedule II to Section 7 of CGST Act

The following composite supplies shall be treated as a supply of services, namely:—

(a) works contract as defined in clause (119) of section 2; and

(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

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GST rates for services

DESCRIPTION OF SERVICES GST RATE

Supply of Food/drinks in restaurant not having facility of air – conditioning or central heating at any time during the year and not having licence to serve liquor.

12% With Full ITC

Supply of Food/drinks in restaurant having licence to serve liquor 18% With Full ITC

Supply of Food/drinks in restaurant having facility of air-conditioning or central heating at any time during the year

18% With Full ITC

Supply of Food/drinks in outdoor catering 18% With Full ITC

Supply of Food/drinks in air conditioned restaurant in 5-star or above rated Hotel

18% With Full ITC

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Sec 11 OF THE CGST ACT 2017 - EXEMPTIONS UNDER THE GST LAW

■ The government has the power to grant exemption from tax on goods or service or both in public interest.

■ Such an exemption could be absolute or with conditions attached.

■ In exceptional circumstances a special order may be passed stating a special exemption.

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EXEMPTION CONTD…

■ Also once the notification is passed and government feels there is a need for clarification or explanation, the same can be issued within one year of the exemption notification.

■ Once an exemption notification is in force the registered person supplying such goods or services or both shall only collect tax not more than the effective rate of tax

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EXEMPTION CONTD..

For Example:

■ Value of Goods Rs. 25000/-

■ GST Rate 18%

■ Exemption Notification Abatement of 25%

■ Therefore, tax payable will be {25000-25% of (25000)}

= 18750*18% = Rs. 3375/-

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Illustration 1

Notification issued u/s 11(1): Conditional, partial exemption

■ The tax payable by a registered taxable person under Section 9, on the supply of aluminium ingots, sows, billets and wire rods made, in the course of inter-State trade or commerce, to a recipient, being a registered taxable person, shall be calculated @ 1% subject to the condition that the recipient uses such goods as inputs in the manufacture of other goods

Notification dt. 01.05.2017

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Illustration 2

Notification issued u/s 11(1): Absolute exemption

■ Exemption to following taxable services from tax leviable thereon:

■ Services Provided to the United Nations or a specified international organization

■ Services by a veterinary clinic in relation to health care of animals or birds

■ This notification shall come into force on the 1st day of June 2018

Notification No. 25/2018 dt. 20.05.2018

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Returns under GST ■ Outward supplier: A registered person should file within tenth of the

following month(GSTR-1)

■ Inward Supplier: A registered person should file within fifteenth of the following month (GSTR-2)

■ Monthly Return: Every registered person shall have to file a monthly return within 20 days after the end of such month. (GSTR-3)

■ Quarterly Return: Every Composition dealer (Sec9) shall have to file a Quarterly return within 18days after the end of such quarter. (GSTR-4)

■ Annual Return: Every registered person (including composition dealers) person shall have to file Annual return before 31st December next FY. (GSTR-9)

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Rectification will be permitted before filing the monthly return for the month of September subsequently at the end of the financial year to which those details belong (i.e. 20th / 18th October of succeeding Year), or filing of the appropriate annual return, whichever is earlier.

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RECTIFICATION OF RETURNS

For Example

Financial year: 17-18

Return to be revised for December 2017

Annual return for 17-18 filed on:

CASE I - 12th October 2018,

CASE II - 15th November 2018

Return for September 2018 filed on 17thOctober 2018

Therefore the return for December 2017 has to be rectified before

12th October2018 in CASE I

And

17th October 2018 in CASE II

Input tax credit taken on such material will be recovered as an arrear of tax under the GST law. 84

CONTD…

Works Contract

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As per existing Law Works Contract includes any agreement carried out for

cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.

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Examples of works contract

Construction of a new building,

Erection,

Installation of plant and machinery. Etc.

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Definition of Works Contract, Section 2(119) of the CGST Act, 2017

- a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract’.

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Comparison ■ As per the existing law, Works contracts are liable to discharge both, VAT

and Service Tax on the consideration received.

■ Under GST the expression ‘works contract’ is limited to contracts to do with immovable property, unlike the existing understanding of the phrase which also extends to movable property.

■ A contract in relation to movable property, would be treated as a ‘composite supply’ of goods or services depending on the principal supply.

■ For GST law, works contract as defined above will be treated as a supply of service, thereby putting a closure to the deliberation on the methodology of segregating the works contract between goods and services.

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Article 366(29A) in The Constitution Of India 1949

Tax on the sale or purchase of goods’ includes’

(a) ------------------.

(b) a tax on the transfer of the property in goods (whether as goods or in some other form) involved in the execution of a works contract.

and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.

CAN GST LAW OVERRIDE THE CONSTITUTION!!

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Concept of Input Service Distributor An input service distributor shall distribute the credit of

1. Central tax

2. Integrated tax

3. State tax

4. Union territory tax

By issuing a document which specifies the input tax credit to be distributed

Whether this concept can be applied towards works contract services

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Interpretational Issues

DESCRIPTION OF SERVICES GST RATE

Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes where room tariff is Rs 2500/- and above but less than Rs 7500/- per room per day

18% With Full ITC

Accommodation in hotels including 5 star and above rated hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, where room rent is Rs 7500/- and above per room per day

28% With Full ITC

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Mega Exemption Notification under existing Law

Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent

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Comparison

Under GST the tax is levied on Transaction Value unlike in Existing Law where tax is on Declared Tariff.

For Example: Mr. A gives discount of Rs.400/- on the Declared value of Rs.1200/- to a customer

Existing law

Mr. A is supposed to pay tax on the declared value i.e., Rs.1200/-.

GST law

Mr. A is supposed to determine tax on the Transaction value i.e., Rs.800/-further which will not be taxed since it is within the limit of Rs.1000/-.

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Advances under GST As per Section 31(3)(d) and (e) of CGST Act;

(d) a registered person shall, on receipt of advance payment with respect to any supply of goods or services or both,, issue a receipt voucher or any other document, containing such particulars as may be prescribed, evidencing receipt of such payment;

(e) where on receipt of advance payment with respect to any supply of goods or services or both the registered person issues a receipt voucher, but subsequently no supply is made and no tax invoice is issued in pursuance thereof, the said registered person may issue to the

Therefore, GST is leviable on receipt of advances of goods or services or both.

Whether Interest on Advances are also taxable under GST when received Adhoc Basis?

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JOB WORK

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DEFINITION

Job work as defined under Section 2(68) of the Central Goods and Service Tax Act, 2017, means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job Worker” shall be construed accordingly.

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PROVISIONS According to the provisions of the law, the material (inputs) and Capital Goods can be sent to

the job worker without payment of duty if the material is:

a) Brought back to the principal’s premises

Or

b) Be supplied further (sold to the customer directly from the job workers premises)

Whether or not the job work is completed or not within a period of:

• One year in case of inputs; and

• Three years in case of capital goods.

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SALES MADE FROM JOB WORKERS PREMISE

▪ The materials or the capital goods can be sold directly from the job workers premises only if the job worker is registered.

▪ If the job worker is not registered the principal can declare the job workers premises as an additional place of business and then can make such a sale.

▪ Such a sale made will attract duty if sold within India, and can be exported outside India without payment of duty.

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DEEMED SUPPLY UNDER JOB WORK

• Where the material / capital goods are not returned or sold within the time limits prescribed under the law, then it will be treated as a deemed supply on the date on which the goods/ capital goods were sent by the principal and duty will be payable by the principal.

Note : Moulds and dies, jigs and fixtures or tools are not considered capital goods for the purpose of job work.

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TYPE OF DUTY PAYABLE

■ CGST and SGST will be levied if the job worker is located within the same state

■ IGST will be levied if the job worker is located in a different state.

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TRANSITION PROVISIONS FOR JOB WORK

■ Where goods are sent for job work before the appointed date, no tax shall be payable if such material is returned to the principal with a period of 6 months from the appointed date

■ The 6 months period may be extended by the Commissioner for a further period of two months.

■ If the material is not returned within the specified period, the input tax credit taken on such material will be recovered as an arrears of tax.

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INPUT TAX CREDIT ON JOB WORK

■ When the principal sends inputs or capital goods to the job worker, the input taxes paid by him will be allowed as input credit to the principal.

■ The credit of input taxes will also be allowed even if the inputs/ capital goods are directly delivered to the job worker without being sent to the principal’s premises

■ The job worker is required to return the goods back to the principal within the prescribed time, if not the same will be considered as a deemed supply.

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Documents for Job Work

■ Transportation of goods without issue of invoice

■ A delivery challan shall be issued in lieu of invoice without payment of duty, Where goods are being transported for Job Work, the same shall be declared in FORM [WAYBILL].

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FEATURES OF GST MODEL

1. Destination-based Taxation

2. It is a Value added tax – Levied at every stage of value chain.

3. It is a combination of CGST (Centre) and SGST (State) or alternatively IGST (CGST+SGST)

4. Every transaction would attract duty levied by state (SGST) & duty levied by union (CGST). However it will be distributed equally between the center and the state

5. IGST shall be levied by Centre alone on interstate supplies and import export transactions. However it will be distributed equally between the center and the state

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FEATURES OF GST MODEL.. Contd.

6. GST allows seamless input tax credit throughout the supply chain

7. The credit of SGST used to pay IGST shall be transferred to Union by exporting state

8. On the import of goods, along with the basic customs duty, IGST will be levied. Importing dealer to get full credit of IGST paid whereas no input credit on Basic Custom Duty paid

9. Mitigation of cascading effect or Multiple taxation

10. Develop common national market

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THE NEED FOR IMPACT STUDY OF EVERY BUSINESS ENTITY

■ Impact on the Funds Flow.

■ Costing on Products and Working Capital.

■ Sourcing of materials, (Inter state vis-à-vis local).

■ Outsource or self manufacture.

■ Pre and Post GST Supplies:

– Free of cost supplies by recipient to contractor would be liable to GST.

– Impact on Import of goods

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Challenges In Implementation

Lack of Adaptation

Lack of Trained Staff

Multiple registration can increase compliances and cost

Lack of clear mechanism to control tax evasion

Hard to estimate the exact impact of GST

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Conclusion

Introduction of GST marks an important milestone in the Indirect Tax reforms in India.

This particular reform might be a big challenge as it requires both Centre and States to put a joint effort.

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