National Conference RAJKOT BRANCH OF WIRC OF ICAI ICAI ......ISD 26 “Input Service...
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National Conference RAJKOT BRANCH OF WIRC OF ICAI ICAI BHAWAN 29 th & 30 th Dec 2018 Ashu Dalmia Controversies in GST 29th DEC’2018
Transcript of National Conference RAJKOT BRANCH OF WIRC OF ICAI ICAI ......ISD 26 “Input Service...
National ConferenceRAJKOT BRANCH OF WIRC OF ICAI
ICAI BHAWAN29th & 30th Dec 2018
Ashu Dalmia
Controversies in GST
29th DEC’2018
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Coverage of Presentation
Initial Preparation for Annual Compliance
GSTR-9 and Statutory Auditor
Inter Branch Transactions
Interest Liability
Intermediary Services-Export
Credit Note and Discounts
Initial Preparation for Annual Compliance
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Ultimate Objectives
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Input tax
Output Tax
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Sequence of Activity
Supply Transaction
DocumentBooks of Account
GSTR I and GSTR 3BGSTR 9
GSTR 9C
Financial Statements
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Reconciliation
Outward Supply
Output TaxInward Supply
Input tax Taxes Paid
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Outward Supply GSTR 3B
GSTR 1
Books of Account
Output Tax GSTR 3B
GSTR 1
Books of Account
Inward Supply GSTR 3B
Books of Accounts
GSTR 2A
Input Tax Credit GSTR 3B
Books of Accounts
GSTR 2A
Electronic Credit Ledger
ITC 01
ITC-02
TRAN-01
TRAN-02
Taxes paid Books of Account
GSTR 3B
Electronic Cash Ledger
Electronic Credit Ledger
Electronic Liability Register
Possible Out Come of Reconciliation:
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Output Tax Short Paid Output Tax Paid in excessOutput Taxes Paid in
Wrong Head
Input Tax Credit Claimed in excess
Tax paid in wrong HeadInput tax Credit Claimed is
Less
GSTR-9 and Statutory Auditor
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Standard on Auditing (SA) 250 (Revised) Consideration of Laws and Regulations in an Audit of Financial Statements
The auditor shall obtain sufficient appropriate audit evidence regarding compliancewith the provisions of those laws and regulations generally recognised to have adirect effect on the determination of material amounts and disclosures in thefinancial statements…….
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0
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Example:
Nature of Transaction Value as reported in GSTR-9
(RS in LACS)
Taxable Out Ward Supply ₹ 100
Inward Supply Subject to RCM ₹ 20
Total ITC claimed ₹ 8
Reversal under Rule 42 ₹ 0
Reversal under Rule 43 ₹ 0
Nature of Transaction Value as reported in GSTR-9
(RS in LACS)
Taxable Out Ward Supply ₹ 100
Exempted Supply ₹ 30
Total ITC claimed ₹ 8
Reversal under Rule 42 ₹ 0
Reversal under Rule 43 ₹ 0
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Chapter V of the Chartered Accountants Act, 1949 contains provisions
regarding `misconduct. ‘Professional misconduct’ shall be deemed to
include any act or omission specified in either of the two schedules to the
Act.
.
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Professional Misconduct
CA ACT
First Schedule
Four Parts
Second Schedule
Three parts
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Technical lapses leading to Misconduct-Part I Schedule II
Clause -5
• failure to disclose a material fact
Clause-6
• failure to report a material misstatement
Clause-7
• failure to exercise due diligence
Clause-8
• failure to obtain sufficient information
Inter Branch Transactions
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Supply….
• Furtherance or in course of Business
• For Consideration
Supply Even without Consideration…
• Schedule I Supply
Schedule I Supply Includes..
• Supply between distinct person
• Supply between Related person
Concept of Distinct Person in GST
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ADA Pharmaceutical
Limited
Delhi Office
Production
Warehousing Sales
offices are in Delhi
ADA needs R&D
Support
Option A
Option B
Outsource the R&D
Activity to a Company
in Mumbai
Setup own branch in
Mumbai
Only for doing R &
D functions for
own company only
Independent
company from
ADA
What is distinct person?
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ADA Retail
Limited
Delhi-
Corporate
Office
Mumbai –
Marketing and
Branch Office
Kolkata–
Branch Office
Chandigarh–
Branch Office
Chennai–
Branch Office
Supply between Distinct Person
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GOODS SERVICES
Possible Supply liable for Cross Charge
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0
Movement of Goods
Technical Engineering Designing Functions
Legal Taxation Counsel Activities
R&D FunctionsSales &
MarketingManagerial Functions
Accounts and Support functions
Use of Licence/Payment
of Royalty
Cross Charge –Application of Matching Concept
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Need to extend the Matching Concept at GSTIN level
Compliance
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Registration Documentation Valuation
Periodic Monthly/Quarterly
Compliance
Annual Compliance
Valuation
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Value of Supply is Transaction Value
Supplier and Recipient are not:
Distinct Person Related Person
Price is the Sole Consideration
Valuation –Distinct/Related Person
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Valuation in case of Related or Distinct Person
Open Market Value
Value of supply of goods or services or both of like
kind and quality
110% of cost of production or manufacture or cost of
acquisition of goods or provision of services
90% of the price charged for goods from unrelated customer by the recipient
Invoice Value=open market Value
If Recipient eligible for full input tax credit
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Recipient Eligibility to take full Input Tax
Credit ?
On particular Invoice? Global Level ?
AAR-GKB LENS-WB
ISD
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“Input Service Distributor” means an office of the supplier of goods or services or both
which receives tax invoices issued under section 31 towards the receipt of input services
and issues a prescribed document for the purposes of distributing the credit of central tax,
State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable
goods or services or both having the same Permanent Account Number as that of the said
office.
ISD Vs Cross Charge
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➢ ISD involves ITC (necessarily) on services which is attributable to other office however Cross-
charge is almost mandatory requirement; and may or may not involve ITC; and relates to
goods as well as services.
➢ In case of cross charge, Service is provided from one unit to another and mostly it is in form of
Business Support/Management Services.However in case of ISD, there is no service element
at all, it is only distribution of ITC from ISD unit to other unit.
➢ Goods supplied from one unit to another unit will be cross charges, ISD is not possible for
goods.
➢ ITC on expenses incurred for managing own office will not be transferred on ISD basis e.g.,
rent, security, housekeeping; it may be availed through cross charge. However, ITC on
Certification fee, Audit fee, Security services,AMC at respective units may be transferred as
ISD.
What if cross charge invoicing not done?
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Penalty
Rs 10kAmt of Tax
evaded
Supply of Goods or
Services without
issue of Invoice
Failure to Take
Registration
May lead to
imprisonment up to
5 years
AAAR
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Columbia Asia Hospitals Private Limited, Dated-12-12-2018, Karnataka-
AAAR
Rent paid on immovable property-
• allocated to other states by charging GST
Telephone services
• allocated to other states by charging GST
Business consultancy services
• allocated to other states by charging GST
Travel Expenses
• allocated to other states by charging GST
Accounting, administration and Maintenance of IT System are carried out by the employees
stationed at IMO-benefit of these activities flows across the Company/units located in other
states
Columbia Asia Hospitals Private Limited is operating across six different states having eleven
hospitals out of which six units are in the state of Karnataka. It has its "India Management Office
(IMO)" i.e Corporate Office in Karnataka and performs following functions
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Columbia Asia Hospitals Private Limited, Dated-12-12-2018, Karnataka-
AAAR
ISSUE: Whether the activities performed by the employees at the Corporate office in the
course of or in relation to employment for the units located in other states (distinct
persons) shall be treated as a supply in terms of the entry 2 of Schedule 1 of the CGST
Act or whether it will not be treated as a supply in terms of the entry I of Schedule III of the
said Act? “
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The employee-employer relationship is to be viewed separately for every registered unit of the business entity. Therefore, in the instant case, the services of the employees at the IMO in so far as they are benefiting the other registered units of the Appellant are to be considered as a 'supply of service' by one distinct person to another, and by virtue of the entry 2 of Schedule I, supply of services between distinct persons even if without consideration is a "supply" within the scope of Section 7 and is liable to GST
Cross Charge Vs ISD :In the case of cross charge, there is an element of service rendered by the person who cross charges his other units even though they belong to the same legal entity. On the other hand, in the case of ISD, there is no element of service at all, but a mere distribution of credit. Further, certain expenses like rent paid on the immovable property, housekeeping services, etc. incurred in maintaining and operating the IMO will not be distributable under the ISD route, rather they are required to be allocated to the other units only by way of cross charge.
Ruling
Interest liability
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Interest on Wrong Availment of ITC
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Section 50 of the CGST Act provides for levy of interest under three circumstances:
a. Where a person fails to pay the tax or any part thereof to the Government within the
period prescribed. Failure to pay tax includes payment of tax by utilisation of wrong
Input tax credit as it is a void payment.
a. Where a taxable person who makes an undue or excess claim of input tax credit u/s
42(10)-Provision of matching still not in operation.
a. Where a taxable person makes undue or excess reduction in output tax liability u/s
43(10)- Provision of matching still not in operation.
Change Recommended – 31st GST Council Meeting
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Interest to be charged only on the Net Tax Liability of the taxpayer, after taking into account the
admissible ITC
Amendment of section 50 of the CGST Act to provide that interest should be charged only on the net
tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e. interest would
be leviable only on the amount payable through the electronic cash ledger
Intermediary Services-Export
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Export of Service
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Supplier of service is located
in India
Recipient of service is located
outside India
Place of supply of service is outside
India
Payment received in convertible
foreign exchange
Supplier and Recipient are not
distinct person
Place of supply
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Place of Supply
Goods
Other than Import or Export-Section 10-IGST
Import or Export-Section
11 IGST
Services
Location of Supplier
Location of Recipient
Both in India-Section 12
Either one is outside India-
Section 13
Intermediary
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intermediary” means a broker, an agent or any other person, by whatever name called, who
arranges or facilitates the supply of goods or services or both, or securities, between two or
more persons, but does not include a person who supplies such goods or services or both or
securities on his own account;
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Transactions;The applicant is engaged in providing back office support services to overseas companies. Overseas Clients are engaged in trading of chemicals and other products in International trade. Vserv will come into picture after finalization of Purchase and Sale order by a Client.
Issue:
✓ Classification of goods or services or both.
✓ Determination of the liability to pay tax on any goods or services or both.
✓ Whether the aforesaid services proposed to be rendered qualify as 'Zero Rated Supply.
Vservglobal Private Limited Overseas Clients
Vservglobal Private Limited, Dated-07-07-2018, Maharashtra
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Fact of the Case:
The Applicant is an Indian Company having its registered office at Mumbai. The company is
incorporated to provide back office support services, Generate order no in VOSS, Inform
Customer on tentative schedule, Liaise with supplier for Cargo Readiness, Send Payment
request to Client, Arrange inspection certificates if applicable to overseas companies. Clients
are engaged in Trading of Chemicals and other products in International Trade. Vserv will come
into picture after finalization of Purchase and Sale order by a Client. Vserv will undertake
following activities for and on behalf of Clients. In supporting applicant provide reference of
GoDaddy case.
Advance Ruling:
The above case are not similar to facts of M/s GoDaddy, the provision of support services was
admittedly on principal to principal basis and were provided with sole intention of promoting the
brand GoDaddy US in India for augmenting its business.
In present case, we find that the activities undertaken by the applicant are for and on behalf of
clients to facilitate supply of goods and services between the clients their customers, hence the
supply can not be treated as zero rated supply.
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Transactions;Applicant is a supplier of services to overseas clients, he has entered into an agreement with their customers, who are located outside India for providing marketing, sales promotion and certain post-sales support services. Consideration for these services would be received in convertible foreign exchange.
Issue:
✓ Whether pure and mere promotion and marketing services will be regarded as "intermediary services"
under section 12 of IGST Act, 2017 for determining the place of supply?
✓ If after sale support services are also provided under a composite contract, would it then be composite
supply?
✓ What will be the principal supply for such contracts?
✓ Whether the contracts would qualify as exports if the client is overseas entity and will be a zero-rated
supply.
Toshniwal Brothers (SR)
(P.) Ltd.Overseas
Customers
Toshniwal Brothers (SR) (P.) Ltd., Dated-19-09-2018, Karnataka
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Fact of the Case:
The Applicant is a private limited company and he is a supplier of services to overseas clients
and is engaged in the business of promotion and marketing and after sale support services as a
composite supply. He has entered into an agreement with their customers, who are located
outside India for providing marketing, sales promotion and certain post-sales support services.
Consideration for these services would be received in convertible foreign exchange. The said
services are provided in respect of scientific instruments used in research and development and
quality control primarily in fields of Nano Science, Material Science, Bio Pharma and Polymer
Sciences. The applicant express his view as the activity undertaken by him by way of promotion
and marketing services is not intermediary services.
Advance Ruling:
✓ The contract of services supplied are not pure and mere promotion and marketing services
provided is of the nature of facilitating the supply of goods would amount to "intermediary
services". And after-sale services are not in the nature of a composite contract and hence
there is no question of determination of what will the principal supply.
Credit Note
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