Demystifying Returns under Goods and Service Tax – Part 1

Roll out of Goods and Service Tax in India is dubbed to be the mother of all indirect tax reforms in India after Independence. Though GST is not rolled out but the government of India has released business process documents on Registrations, Payment, Refund & Returns. In this blog we will review the business process document on returns, it implications on the business, it process and systems.

A tax return is a statement filed by the taxable person stating his transactions or summary of the transactions for the period along with the amount of output tax payable, input tax credit availed and amount paid in cash towards discharge of the output tax liability. This return is supposed to give the full information on the business transactions of the taxable person.

As a measure to make the roll out of GST is smooth, the GOI has detailed out the returns to be filed along with the format and the required information as this will give some time for the taxable person to changes in his business process.

As per the business process document on returns, the following are the key points

  • Single return is to be filed for the state and central government
  • Single return for all the taxes i.e CGST, SGST, IGST and Additional Tax
  • Return filing is online
  • Transaction level data to be uploaded in the return

Various returns to be filed under GST are

Sl.No Report Name To be filed by Content of the report Due date
1 GSTR – 1 Other than by compounding tax payer and input service distributor Outward supplies – goods and services 10th of next month
2 GSTR – 2 Other than by compounding tax payer and input service distributor Inward supplies – goods and services 15th of next month
3 GSTR – 3 Other than by compounding tax payer and input service distributor Monthly return 20th of next month
4 GSTR – 4 Compounding tax payer Quarterly 18th of the next month of the quarter
5 GSTR – 5 Non Resident Tax Payer Inward supplies – goods and services Last day of registration
6 GSTR – 6 Input service distributor Inward supplies – services 15th of next month
7 GSTR – 7 Other than by compounding tax payer and input service distributor Return for tax deducted at source 10th of next month
8 GSTR – 8 Other than by compounding tax payer and input service distributor Annual Return By 31st December of next financial year

 Data Points in the report

 Unlike in the current excise and service tax reports where the summary of the sales and purchases information in shown in the respective reports but in GST all the transaction level data has to be show in the report for the supply of goods or services based on the place of supply and point of taxation rules under GST.

Major data points in the report

  • GSTIN of the tax payer
  • period for which the report is being filed
  • GSTIN of the buyer
  • Line level invoice data showing the taxable amount and tax amounts for CGST, SGST, IGST and additional tax
  • HSN code in case of items
  • SAC (Service Accounting code) in case of services
  • To flag the transactions is reverse charge is applicable
  • if the goods are being received in a different state, then state code under the column POS

HSN Code

In the current tax regime, the HSN code is applicable only for the Excisable goods known as Tariff Codes and for customs. Under the proposed GST the same is rolled out for the all the taxes like SGST and IGST also.

In the reports, 4 digits of the HSN code is to be shown by the tax payers if the turnover is more than Rs 5 Cr and in case of turnover between Rs 1.5 Crs and 5 Crs the tax payer can show first two digits of the HSN code. In case of compounding tax payers, in the first year they are exempted to show the HSN codes.

In case if the tax payer is willing to show 8 or 6 digits of the HSN code there is no restriction.

Service Accounting Code

In the current service tax requirements, the tax payer is required to show the service type on the transactions and now the same is being replaced under GST and Service Accounting Code. This code must be shown in all the reports where supply of service transactions is being reported.

The above information is common across the reports and in the next section we will review the requirements for each report.

GSTR – 1

GSTIN of the tax payer along with the period for which the return is being filed.

The system will auto populate the previous year turnover from the second year on wards and in the first year the same has to be entered by the tax payer manually.

Invoice level details have to be shown in the report irrespective of the invoice value in case of B2B transactions for both interstate and intra state transactions separately for the supply of goods and services.

In case of B2C transactions, invoice value above Rs 2, 50,000 have to be reported in the report state wise and in case of transactions less than Rs 2, 50,000 summary of those transactions state wise has to be reported.

List of all debit notes and credit notes to be shown along with the original invoice for which these documents are issued with tax amounts.

In section 9, details of the transactions for which discounts are issued for the supplies made in the previous periods to be show here along with the original invoice number.

In section 10 summary of the transactions for interstate and intra state to be show for supplies made for NIL rated goods, exempted and Non GST supplies.

Shipping details i.e. Bill of Lading number and date to be show in section 11 of the report for direct exports and deemed exports. This information will be validated by the department with ICEGATE for processing of refunds if any applicable.

Advance received from the customers have to be shown section 12

Supplies made against advance received under section to 12 to be shown in section 13.

GSTR – 2

Most of the data in the GSTR – 2 will be auto populated based on the data filed by the seller in GSTR – 1. This is a radical shift from the current process of availing input tax credit where it is available based on the receipt of goods in case of excise and invoice in case service tax. Under the current process there is lot of revenue leakage and to plug this new process is being implemented wherein the buyer will be entitled to take credit only after the seller pays the taxes.

In Section 4 of the report, the data is auto populated based on the data filed by the seller. For this data, the buyer has to classify if the goods purchased are capital goods or inputs or none. Based on this classification the input tax credit is available. The buyer can also add purchase receipts if the same are not uploaded by the seller.

In section 5 of the report, the buyer has to list all the import supplies of goods for both capital and inputs along with the bill of entry details and total input credit available and input credit being availed during this month.

In section 6 of the report, the buyer has to declare the import of services with invoice wise details along with the input tax credit available and also the input tax credit available in the month.

In case of import of goods and services from outside India only IGST is applicable under GST apart from the other import duties.

In Section 7, the debit and credit notes issued by the supplier for the price adjustment or for any other reason uploaded will be auto populated and the tax payer has to classify the credit if for inputs or capital goods.

In Section 8, the information will be auto populated based on the data uploaded by the supplier in section 9 of GSTR – 1 for the discounts offered post supply of goods.

In Section 9, purchases from un registered dealers, compounding dealers, NIL Rate or exempt supplies are to be summarized by HSN or SAC code for interstate and intrastate supplies.

In Section 10, the input tax credit based on the ISD will be auto populated by the supplier’s returns.

In Section 11, the TDS credit for all the taxes will be auto populated based on the suppliers return.

In Section 12, will list the invoice for which partial credit taken during the previous months based on the invoice number. The data will be auto populated based on the previously uploaded information.

GSTR – 2 has to be filed by 15th of the next month for auto populating the data and corrections if any can be done by 17th.

GSTR – 3

It is a monthly return to be filed by the tax payer and it is mostly auto populated based on the data in GSTR – 1 and GSTR – 2. This report is to be filed by 20th of the month and first three columns will be auto populated once the user logs in.

 Turnover Details including Gross Turnover, Export Turnover, Exempted Domestic Turnover, Nil Rated Domestic Turnover, Non GST Turnover and Net Taxable Turnover by the user manually.

Section 6 is for the outward supplies and in this section most of the data is auto populated.

Section 6.1 is for reporting the supplies to registered tax payers for interstate transactions and data is auto populated from Section 5, 8 and 10 of the GSTR -1 report.

Section 6.2 is for reporting the intra state supplies to registered tax payers and is auto populated from Section 5, 8 and 10 of the GSTR -1 report.

In GSTR – 1 for section 5, we have the state for each and every transaction and based on this state code the values are bifurcated between the interstate and intrastate to section 6.1 and 6.2 in this report.

Section 10 of GSTR – 1 has the breakup of the nil rate, exempted and non GST supplies for interstate and intrastate and from there the data is processed and shown in the respective columns.

In GSTR – 1 the user does not upload the tax rate and in GSTR – 3, the data is auto populated based on tax rate, so there should be process to determine the tax rate and show the data here, in case if the user collects higher or lower rates to the rates prescribed, will there be an validation or not, for this we need to see for the actual data validation at the time of submission of the report.

In Section 6.3 and 6.4 the supplies to consumers is shown for interstate and intra state and auto populated based on the data uploaded in GSTR – 1 from section 6,7,8 & 10.

Section 6.5 shows the deemed exports and data will be auto populated from Section 11 of the GSTR – 1 report.

Section 6.6 show the data related to discounts issues post sales or on account of clerical error or for any other reason and data is auto populated from Section 9 of GSTR – 1.

Section 6.7 shows the total tax liability for all the taxes derived from Section 6.1 to 6.6 auto populated for goods and services.

Section 7 of the GST – 3 deals with the input credit portion and similar to the output tax section in 6, most of the data is auto populated in the return based on data filed in GSTR – 2.

Section 7.1 deals with the input credit related to Inter State supplies received with respect to inputs, capital goods and services. The data is auto populated based on the data uploaded in section 4, 7 and 9 of GSTR – 2.

Section 7.2 deals with the input credit related to Intra State supplies received with respect to inputs, capital goods and services. The data is auto populated based on the data uploaded in section 4, 7 and 9 of GSTR – 2.

The list of invoices for the interstate and intrastate is derived based on the GSTIN mentioned in section 4 of GSTR – 2.

Section 7.3 is for summary of the input tax credit received on account of import of goods and services from foreign countries for inputs, capital goods and services based on section 5 & 6 of GSTR – 2.

Section 7.4 is for summary of Input tax credit received on account of post sales discount or on account of clerical error or for any other reason for inputs, capital goods and services for all taxes. Data is auto populated based section 8 of GSTR – 2.

Section 7.5 is for summary of output tax on account of reverse charge and for goods and services. Data is populated based on Section 6 of GSTR – 2.

Section 8 is for determining the total tax liability for the month for all the taxes under GST for the period for which the return is being filed. Data is auto populated based on sum of section 6.7 and section 7.5.

Section 9 auto populated based on section 11 of GSTR – 2 for the tds credit received for the period.

Section 10 shows the total input tax credit available for the month based on the Input Tax Credit ledger for each tax of GST by rate.

Section 11 shows the data for the tax amounts adjusted on account adjustments, penalty, late fee etc. and data is auto populated from cash and ITC Ledger.

Section 12 shows the amount eligible for refund and excess tax paid during the current and previous periods.

GSTR – 4

Is a quarterly return to be filed by the tax payers if they have opted for compounding scheme under GST. The tax payer after crossing the prescribed threshold limit can opt to be a regular tax payer wherein he can take credit of the input taxes or opt for a scheme where he can pay fixed rate on the sales and at the same time cannot avail input tax credit. This return is to be filed by 18th day on completion of the quarter.

Section 1 to 4 contains the regular information like the GSTIN, name of the tax payer, period for which the return is being filed etc.

Section 5 shows the purchases made by the compounding dealer and this data is auto populated based on the suppliers GSTR – 1. It also contains the purchases made from unregistered dealers. The data is split into two sections, one for the purchases without reverse charge and another with reverse charge.

Section 6 is for the imports made by the compounding dealer if any and the data is to be shown along with the Bill of entry number and HSN code of the item in 8 digits.

Section 7 is import of services by the compounding dealer if any along with the SAC code and the tax amount.

Section 8 shows the summary of the supplies made by the compounding dealer for the period with respective to supplies made to intra state supplies, un registered GST dealers along with exports.

Section 9 shows the amount of tax payable by the compounding dealer for the period along with interest and late fee if applicable.

Section 10 shows the payment details for the amount of tax paid.

In section 11 the dealer also has to clarify if the turnover is likely to cross before filing the next return for next quarter.

GSTR – 5

GSTR 5 is to be filed by the non-resident tax payers within 7 days on expiry of the registration certificate or monthly return till the registration number is valid. In case of monthly return it has to be filed by 20th of the next month.

Section 1 to 4 contains the generic date like the name, address, GSTIN and period for which the return is being filed.

Section 5 contains the details of the imported goods during the return period. HSN code has to be shown in 8 digits along with the Bill of Entry number, date, qty imported along with IGST if paid.

Section 6 contains the supplies made by the non-resident dealer for the return period and it contains the transaction level data along with the GSTIN of the buyer is available.

Section 7 contains the input tax credit availed for the return period for goods and services along with the GSTIN of the supplier.

Section 8 contains the amount of tax to be paid for all taxes under GST after adjusting the input tax credit if any available.

Section 9 contains the details of the closing stock at the month end or at the time of filing of the return.

GSTR – 6

GSTR – 6 is a return to be filed by the Input Service Distributor by 15th of the next month.

The first three sections of the report contains the information like the GSTIN, period for which return is being filed and also the name of the ISD.

Section 4 contains the purchase of service made by the ISD and this information is auto populated based on the GSTR -1 filed by the service provider / supplier. It also shows the supplies attracting reverse charge. We need more information for “Total tax available as ITC for distribution”, this needs to be interpreted based on the rules on GST when announced.

Section 5 contains the information relating to the distribution of the input credit.

Section 6 show the ISD ledger which is nothing but the summary of the input tax received, reversed and distributed along with the opening and closing balance for all the taxes under GST.

GSTR – 7

GSTR – 7 is to be filed by 10th of the next month by the tax payer who withholds / deducts TDS under GST.

The first three sections of the report are the generic data like the registration number, name of the deductor and the period for which the return is being filed. If we go through the dotted line in the report it talks about the GSTIN / GST TDS IN – does it mean there will be a different registration number for TDS under GST? The Business process document does not mention about this, for further information we need to wait for the rules and the act.

Section 5 contains the data for all the transactions where GST is deducted along with the GSTIN of the supplier for all the taxes under GST and it also shows the Challan number through which TDS has been paid.

Section 6 contains the amount of interest on delayed payments or late payment fee if any.

GSTR – 8

It is an annual return to be filed by the regular tax payers by 31st December of the next financial year. The return also has to be accompanied with a reconciliation statement signed by the auditor of the company. Details of the reconciliation statement format is awaited.

The following are the content of the GSTR – 8

  • Details of the income and expenditure of the dealer
  • Data is re grouped based on the data filed in monthly returns
  • It shows the amount of refund if any payable by the department
  • Details of the tax liability
  • Details of the input tax credit
  • Details of the items along with the HSN code, unit of measure and quantity for purchases and sales.
  • Details of the input services and output services along with the SAC code.

Section 5 (a) contains the total value of interstate purchase of goods and services on which the input tax credit availed in two different tables.

It shows the item wise details of the purchases along with HSN code, description, unit of measure and quantity purchased along with IGST credit if any availed.

Section 5 (b) contains the information similar to 5 (a) but it is for intra state purchases and here the taxes shown are CGST and SGST along with tax credit availed.

Section 5 (c )  contains the details of the import of goods and service in two different tables along with the HSN code for item and SAC code for services with tax rate, amount and customs duty paid in case of goods.

Section 5 (d) contains the details of the purchases on which input tax credit is not availed, basically the purchase from compounding dealers and non-registered dealers.

Section 5 (e ) contains data related to sales returns, this means that whenever the customer returns the goods, the same has to be shipped on invoice with payment of taxes and the taxes are available as input tax credit. It contains item wise details along with HSN code and individual taxes like CGST, SGST and IGST.

Section 5 (f) contains the expense incurred other than purchases i.e. the ledger account along with the amount has to be shows in the section.

Section 6 is for the details of the income for the period during which the return is being filed.

Section 6 (a) contains the interstate supply of goods and services. HSN code, description of item, unit of measure, quantity, tax rate and tax amount along with taxable value for supply of goods and in case of supply of services it contains the description of service, SAC code, tax rate, taxable value and the tax amount.

Section 6 (b) similar to section 6 (a), this section contains the intra state supply of goods and service.

Section 6 (c) contains the export of goods and services on which GST is paid in two different tables along with the item and service details. In case of goods it contains the description of the goods, HSN code, tax rate, FOB value, IGST and customs duty if any paid. In case of service, the description of service, SAC code, tax rate, FOB value and tax amount.

Section 6 (d) contains the export of goods and services on which GST is not paid with same details as in section 6 (c).

Section 6 (e) contains the value of goods and services supplied on which GST is not paid.

Section 6 (f) contains the list of purchase returns made during the year along with the item description, HSN code, taxable value and tax amounts.

Section 6 (g) contains the income earned not on account of supply of goods and services. The details of the ledger account and the amount earned has to be shown in this section.

Section 7 is the reconciliation statement for each tax under GST like CGST, SGST and IGST. Month wise amount of tax paid, tax as per the audited account, difference if any and interest on it along with penalty has to be show in three different tables.

Section 8 contains the details regarding the refunds, arrears on account of audit or assessment.

Conclusion

The returns under GST are common for the state and centre and this helps in drastic reduction in the time taken for preparation of returns and more over all the state have the same format so there are no complexities involved to large extent. The paradigm shift with these proposed returns is that transaction level data has to be uploaded on monthly basis which is not required under Central Excise or Service Tax.

The data required to generate the returns is very simple and it is more or less like a listing report so any accounting software or enterprise recourse planning software should be able to support the same. The only open item for the time being is the process of filing of the return is directly on the GSTN server or on service providers appointed by the GSTN. It cannot be GSTN as the transaction level data has to be uploaded by each and every registered tax person and the servers cannot manage the traffic on the last days of the return filing.

Though the basic information is available the details will be known along with exact formats when the rules and announced.

Formats of the report can be accessed from http://dor.gov.in/sites/upload_files/revenue/files/mygov_1445315831190667.pdf

Challenges in returns and other ledgers will be continued in next part.

to be continued……..

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

Website – http://india-gst.in/

Facebook page – for latest news on GST –  www.facebook.com/ingst

Mail – mallikarjunagupta@india-gst.in

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Demystifying Refund Process for Goods and Services Tax

In normal course of business, the registered dealer buys goods from the registered dealer and avails the input tax credit and utilizes the same for paying the output tax liability on sales. There will be certain cases where the inputs are taxed and the output is not taxed or inputs are taxed at higher rate and output is taxed at lower rate or inputs are taxed at normal rates and output is tax exempted on account of supplies to deemed export units or exports etc. In all these cases there will be accumulation of the input tax credit and the same has to be claimed as refund with various tax agencies like central excise, service tax etc. Claiming refund is a tedious process for the assesse as well as processing refund by the tax authorities. Under GST most of the taxes are being subsumed, so the refund process should be simple.

The objective of GST is to have uninterrupted credit in the supply chain and also exempt exports from taxes so that Indian goods and services will have a competitive edge in the international markets and thereby increase the exports and improve the balance of trade.  To achieve this, the refund mechanism has to be very simple and tax payer friendly.

As per the business process document released by the Joint Committee, refunds can arise due the following conditions

  • Excess payment of tax due to mistake or inadvertence.
  • Export (including deemed export) of goods / services under claim of rebate or Refund of accumulated input credit of duty / tax when goods / services are exported.
  • Finalization of provisional assessment.
  • Refund of Pre – deposit for filing appeal including refund arising in pursuance of an appellate authority’s order (when the appeal is decided in favor of the appellant).
  • Payment of duty / tax during investigation but no/ less liability arises at the time of finalization of investigation / adjudication.
  • Refund of tax payment on purchases made by Embassies or UN bodies.
  • Credit accumulation due to output being tax exempt or nil-rated.
  • Credit accumulation due to inverted duty structure i.e. due to tax rate differential between output and inputs.
  • Year-end or volume based incentives provided by the supplier through credit notes.
  • Tax Refund for International

Excess payment of tax due to mistake or inadvertence

In normal course of business no assesse makes excess payment intentionally, if such payments happen it may be due to mistakes like writing wrong account codes for the tax to be remitted or typo’s for tax liability or payment of tax for another registration number. These are cases which do not occur commonly but still it leads to lot of complexity and procedural delay to be followed for getting refunds. In proposed GST as per the business process document it says the excess amount will be refunded after verification which should be simple and mostly on line process or carried forward for adjustment for offsetting the future liability.

Export (including deemed export) of goods / services under claim of rebate or Refund of accumulated input credit of duty / tax when goods / services are exported

As per the business process document, the treatment for the exports and deemed exports are going to be handled / processed separately.

Export of Goods

Under the current tax regulations we have the following provisions for the exporter for goods

  1. Importing the goods without payment of duties and exporting the final product without payment of duties.
  2. Importing the goods with payment of duties and claiming refund of the same while exporting the goods without payment of duties.
  3. Importing the goods with payment of duties and also paying the taxes at the time of export and claiming rebate on the duty paid exports.

Under GST it is being proposed that the first option will not be available and all the exporters have to pay taxes during import or domestic purchase and also clear the goods with payment of taxes at the time of export by utilizing the input tax credit available. After exporting the goods the, the taxes will refunded though a simple process. The process being processed is mostly online to minimize errors and also reduce the time for refund process. For this basic reason only in the GST registration application, IEC i.e. import export number is being captured and it will be verified by with ICEGATE (though online mechanism). Normally for processing of refunds the information required is related to supply i.e. invoice details along with the shipping bill, export invoice, packing list, bill of lading etc. and these document would be available with the ICEGATE. GSTN will also have these details of all the purchases and sales as the tax payer is expect to upload invoice wise details in the monthly returns.

It is also being proposed to have the option of import of goods without taxes but again as in the current process the importer have to file lot of documentation and prove the same. We need to wait for the actual bill for the exact details of the same.

It is being proposed to have a time limit of one year for claiming the refund.

Export of Services

The process of export of services is simpler compared to goods as there is no customs documentation involved. To ascertain exports the two basic document required are invoice and the bank realization certificate (BRC). These two documents will prove that export of services has taken place.

Under GST it is being proposed to make BRC as mandatory document for processing of refund. For processing of the refund the latter date of the invoice or BRC will be considered. This will also take care of the advance received in some cases. It is also recommended that e-BRC module may be integrated in the refund process under GST.

Deemed Exports

Exports are considered to be deemed exports based on the listings in the chapter 8 of the foreign trade policy. Supplies by domestically produced goods to EOU’s / SEZ’s / Mega Power Plants / World Bank Funded Projects and projects under international competitive bidding are considered as deemed exports. Under the current tax regulations for excise duty paid on inputs for manufacturing or purchasing such goods the supplier can claim drawback.

Under GST it is being proposed to treat deemed exports also as regular exports.

Refund of tax on purchase made by UN Bodies, Supplies to CSD Canteens or para military forces etc.  

Under the current tax regulations the taxable purchases made by the UN bodies are eligible for tax refunds. In proposed GST also it is will be continued and the process is being simplified and also manual intervention is being planned to be reduced to the maximum extent possible.

All the UN bodies will be assigned a unique identification number under GST with PAN or without PAN. In case if PAN is not there a separate series may be followed. The purchase invoice must have this unique identification number and the same is expected to be mentioned on the returns and in the refund documents. The GSTN will validate the purchases made by the UN bodies as the supplier of the goods or services is uploading the invoices in his GSTR1 return. It is expected that all purchases may not be allowed for refund and the refund amount will be derived based on the total purchase tax reducing the ineligible purchases.

The same process is applied for the supplies to CST canteens or other para military forces. The refund will be for all the taxes i.e. CST, SGST and IGST. A separate return is being proposed for these organizations.

Tax credit on inputs used for manufacturing / generation / production / creation of tax free supplier or non GST supplies  

Under the current tax regulations either by the center or the state input tax credit is not allowed or refunded on inputs used for tax exempted or nil rated goods.

Under GST there would be some cases where the goods or service may be exempted or nil rate. In such cases the input tax paid on the goods or services is not eligible for input tax credit or for refund. In case of mixed supplies, it is allowed proportionately.

Refund of carry forward of input tax credit 

UN interrupted flow of input tax credit is one of the features of GST. In some business cases this can lead to accumulation of input tax credit like

  • Inputs are taxed at a higher rate and output taxed at lower rate
  • Capital goods
  • Stock accumulation
  • Partial reverse charge

Under GST the occurrences for such cases is very minimal as there will be fewer exemptions and minimal number of tax slabs.

Under GST it is being proposed that refund may not be possible for stock accumulation and capital goods and such input tax credit will be transferred for the next period and in other cases the same is possible.

In the other case refund may be granted after matching the purchases and sales based on the returns filed by the tax payer. For obtaining refund an application has to be filed by the tax payer.

It may also happen in case of services where the service provider is under reverse charge and he is not able to utilize the full amount of input tax credit claimed under reverse charge mechanism.

Refund on account of year end or volume based incentives 

In the current business practice during the year end volume based discounts are given and for this credit notes are issued. This process is being misused by the downstream dealers as they are showing negative value addition and as a result of it many of the state governments are not allowing the same.

Under GST it is being proposed that this practice will be allowed and to avail the input tax credit on the credit notes a charted accountant’s certificate is required to be issued for validating the same or through self-assessment based on a threshold limit. GSTN is also required to make certain validations to make the same eligible for refunds if any.

Tax Refunds for international tourists

Tax refunds are given to the foreign tourists in most of the countries as it promotes tourism and also gives a flip to the manufacturing in the country. Currently this practice is followed in about 50 nations across the globe.

Under GST this is proposed to be implemented and the refund will be issued at select air / sea ports.

Apart from the above mentioned process where refund is processed there are also some other cases where the refund will be eligible if the tax payer is awarded by the appellate authority order or when excess tax was paid during the provisional assessment. These are also going to be continued in the GST also and the process will be simple compared to the current process.

Refund Process

Under GST the refund process is being proposed to be simple as the refund application is to be filed online and the validation of it is also mostly done through online as the relevant data is already available in the system. The business process document for refunds have prescribed some formats the same may be implemented as it is or modified based on the public feedback and the actual rules being in force at the time of roll out of GST.

It is being proposed that the refund process should be validated within 90 days from the date of filing and. It is also being proposed to levy interest if the refund order is not processed in stipulated time period.

It is proposed that refund may be allowed to be filed within one year from the relevant date and the relevant date defers from case to case and the following are the relevant dates to be considered as per the business process document

  • Date of payment of GST when the refund arises on account of excess payment of GST due to mistake or inadvertence.
  • Date on which proper officer under the Custom Act gives an order for export known as “LET EXPORT ORDER ” for the purpose of refund filed on account of export of goods under claim of rebate of GST paid on exported goods or refund of accumulated input credit of GST when goods are exported.
  • Date of BRC in case of refund on account of export of services under claim of rebate of GST paid on exported services or refund of accumulated input credit of GST when services are exported.
  • Date of the finalization order where refund arises on account of finalization of provisional assessment. (May not be required if the GST law does not provide for provisional assessment)
  • Date of communication of the appellate authority’s order where the refund arises in pursuance of an appellate authority’s order in favor of the taxpayer.
  • Date of communication of adjudication order or order relating to completion of investigation when refund arises on account of payment of GST during investigation, etc. when no/less liability arose at the time of finalization of investigation proceedings or issuance of adjudication order.
  • Date of providing of service (normally the date of invoice) where refund arises on account of accumulated credit of GST in case of a liability to pay service tax in partial reverse charge cases.
  • Date of payment of GST for refund arising out of payment of GST on petroleum products, etc. to Embassies or UN bodies or to CSD canteens, etc. on the basis of applications filed by such persons.
  • Last day of the financial year in case of refund of accumulated ITC on account of inverted duty structure.

While filing the refund application, the filer is expected to submit some bear minimum documentation so that it can be processed and validated quickly like the invoice copies, proof for payment of taxes, documentary proof to show that tax burden is not passed on to the buyer and also certification from the charted accountant.

As the refund application is being proposed to be filed online, there is no requirement for filing of multiple copies and the same application can / will be used for processing all the taxes i.e. CGST, SGST and IGST.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual. Author can be reached at mallikarjunagupta(@)india-gst.in

Website – http://india-gst.in/

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Weeding out the black sheep under proposed Goods and Service Tax – will it work?

In the current tax architecture of India, Input Tax Credit i.e CENVAT Credit in case of purchase of manufactured goods and VAT credit in case of purchase of goods within in the same state is available based on the sales invoice issued by the selling dealer. The buyer on receipt of the goods will avail the input tax credit and adjusts / offsets it against the output tax liability. This process is simple for the business houses as credit is available immediately and saves the cash flows. Now let’s look from a taxman’s perspective

  1. The selling dealer pays the tax in the subsequent month and the tax collection / revenue is increased. The buying dealer avails the credit, no impact on the tax collection as the amount got collected is utilized by the buyer in the same month or subsequent months.
  2. The selling dealer does not pay the tax and the buying dealer avails the credit, in this process, there is revenue loss.

In the second case, the government is not receiving any income but the buyer is availing credit, that means there is revenue loss and from a taxman’s parlance it is also known as revenue leakage. This happens due to some black sheep in the system and it also increase the menace of black money in the economy as the payment from the buyer goes unaccounted.

To plug this, it is being proposed to rate the dealers similar CIBIL which is followed by the banks before disbursing loans to the individuals. If the CIBIL score is good, the individual is disbursed with loan or rejected or disbursed if any discrepancies are cleared.

To avoid the revenue leakage, it is being proposed in GST that input tax credit will be available only when the seller pays the tax liability.  The input tax credit is now under the control of the seller and the GSTN and no longer in the hands of the buyer. This is paradigm shift from the current process. The buying dealer is eligible for the input tax credit only when he selling dealer pays the tax liability.

Now the question arises, how will the buyer know if the seller is prompt in his tax payments?  The government intends to send alerts on all the defaulting dealers though SMS with all his registered buyers and also make this information public. This process is called blacklisting of dealers. The blacklisting of dealers is not only based on this condition but also on other conditions

  1. Continuous default for 3 months in paying ITC that has been reversed.
  2. Continuous default of 3 months or any 3 month-period over duration of 12 months in uploading sales details leading to reversal of ITC for others. Defaulters of even a single event should also be flagged and put in public domain as being a potential black listed dealer so as to alert the buyers.
  3. Continuous short reporting of sales beyond a prescribed limit of 5% (of total sales) for a period of 6 months.

Business Implications

Does purchases from a blacklisted dealer has business implications? The answer is “YES”.

Increase in the cost of production  – if the seller does not remit the tax, it means the buying dealer cannot avail input tax credit, that means, the tax has to be treated as an expense based on the prevailing accounting standards. The moment it is taken as an expense tax, the cost of production will increase and thereby hitting the bottom line of the company.

 Increase in the working capital limits – if the input tax credit it not available to the buying dealer, it is a double edge sword. As input tax credit is blocked for the said purchases, the output tax liability has to be paid from through cash that means there will be impact on the cash flows and there by impacting the working capital. Again more working capital means more financial costs, more financial costs means impact on the bottom-line of the organizations.

Complexity in handling the external reporting – the proposed laws under GST are not stringent, the input tax credit is available once the selling dealer remits the taxes. The complexity arises now, if the purchases are done in the month of February 2016 and the selling dealer remits the tax in May 2016. How do we handle this in the financial reporting as in India the financial year is 1st April to 31st March. As the credit is related to prior period item, do we need to make necessary changes to the reported financial statements? The other challenge is if the input tax is treated as recoverable, and the dealer does not pay and there is change of financial year, how to report the recoverable tax as expenses?

Why blacklisting is being proposed

  1. Only for regulating ITC by others.
  2. Will be based on dealer rating. A dealer will be blacklisted if dealer rating falls below the prescribed limit.
  3. To be put in public domain.
  4. To be notified (auto-SMS) to all dealers who have pre-registered this dealer (black listed now) as their supplier.
  5. To be prospective only (from month next to blacklisting)
  6. Blacklisted GSTINs cannot be uploaded in purchase details. Corresponding denial of ITC to be supported by suitable provision in the law.
  7. ITC reversal in hands of the buyer should take place for disowning of any tax invoice with date prior to effect of blacklisting of the seller.
  8. Once blacklisting is lifted, buyers can avail unclaimed ITC subject to this dealer uploading sales details along with tax and interest.

How avoid getting into the trap?

In the current business process of any organization, the parameters which the purchasing teams look into are

  1. Quality of the goods
  2. Consistent supply of the goods
  3. Timely delivery
  4. Prompt after sales service if required
  5. Cost of the goods
  6. Any other specific parameters based on the need of the hour

Payment of taxes by the seller also has to be added to the above list, this will ensure that the cost of production does not go up and also the cash flows which in turn impacts the bottom-line of the company/organization. This means the purchasing teams should be trained on the implications of the GST in advance to avoid any unpleasant surprises once GST is rolled out.

Can the new process proposed under GST will work? Only time has to answer this question……

Any views or opinions represented in this section are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

Views on Joint Committee on Business Process for GST – Registration Number

Goods and Service Tax is a tax to be levied on supply of goods and services in India and it is in discussion for almost a decade now.  In the current taxation we have different laws for supply of goods and services this gives lot of room for confusion and high cost in compliance from a business house perspective and from government perspective also.  Across the globe in about 160+ counties GST has been introduced and it is also known as Value Added Tax in some countries.

During the last one year on wards there is lot of buzz or activity on the GST front in India.  In the second week of October 2015, the joint committee has released documents on business process

  • Registration
  • Payment Process
  • Refund Process
  • Returns

This blog covers on all the above topics in different sections. First we will review the business process document on the Registration titled by empowered committee as “GST Registration”.

Registration Number is key to any taxation as it helps in tracking of all the supplies i.e sales of goods or services, helps in taking the input tax credit, helps the tax authorities in determining the tax collection to sales, reconciliation between the tax collected and input tax claimed by the business houses. In the current tax regime, the business house is required to have registration numbers from multiple tax authorities like ECC number from the Central Excise, Service Tax Registration Number from the Service Tax Department, TIN and CST Registration number from the State Tax Authorities, IEC number from the Director General of Foreign Trade etc. This is tedious process and more over the thresholds for obtaining these registration numbers is also different. This adds to the complexity and the compliance cost. In the proposed GST, there will be only one number replacing most of the registration numbers. In the proposed GST regime, GST registration number will be termed as GSTIN i.e Goods and Service Taxpayer Identification Number.

Who has to obtain GSTIN

  • Any person who supplies goods and services and has turnover above the threshold limit
  • Who wants to collect and take credit of the GST
  • Who has interstate supply of goods or services
  • It is also called UID any buyer wants to refund of the taxes paid like UN Bodies / Government authorities / PSU’s

If an organization has breached / crossed the prescribed threshold, the person has to file for GSTIN registration number within 30 days. The applicant or the person who is filing for the registration number is eligible for claiming the input tax credit from the date of filing of the application for GSTIN.

A person can have GSTIN if he opts for compounding scheme, the threshold limit for the compounding scheme will be in the GST Law and the tax payer will not be allowed to take credit or collect GST.

A person can take GSTIN voluntarily and this will ensure that the tax payers is in credit chain even before he crosses the prescribed turnover limit.

Format of GSTIN

According to the Business Process document issued for GST on registration, the registration number is based on PAN similar to the current Excise Control Code ( ECC ) or Service Tax Registration Number. It is being proposed to be 15 digit number.

Registration number format

The first two digits, determine the state in which the GSTIN in being obtained, the list of the states is based on 2011 Indian Census. Under this each state will be allocated a two digit number.

Next 10 digits are PAN number of the entity issued by the Income Tax Department.

Thirteenth digit is alpaha numeric and it is based on the users requirement to get registration based on the business vertical. There can be 35 sequences maximum for this 1-9 numbers and alphabets a – z . If the tax payer is going for a single registration then it will be 1 in the thirteenth field but if he goes for more than one registration like one two business vertical say for example one for consumer durables and another for automobiles then the second one will be having 2 in the thirteenth number and the third registration number will be having 3 in the thirteenth field.

14th digit is a being reserved by the GSTN for the future use and the 15th digit is check digit.

 How to get GSTIN

GSTIN can be obtained in the following manner

  1. Directly applying from the GST Common Portal
  2. Tax Return Preparer (TRP)
  3. Facilitation Center

The GST Common Portal will be setup by the Goods and Service Tax Network (GSTN) and it will be integrated with the IT Systems of the State and Central Governments.  The final decision will be taken by the GST Law drafting committee on the TRP and FC centers.

There is no restriction on the number of applications being submitted by the taxable person, this facility is being provided so that if any taxable person has presence in more than on state, can file the application for registration numbers in one go.

The process of obtaining registration number is simple, the tax payer has to submit all the documents along with the application form. Scanned copies of the documents have to be submitted along with application online.  Once the documents are submitted a confirmation mail is sent and based on the confirmation Acknowledgement number will be generated. Once the application is approved, GSTIN will be issued along with the login credentials to the mail id of the authorized person.

Documents to be submitted

The following documents have to be submitted along with the filing of the application online

  • Constitution of business
  • Details of principal place of business
  • Details of bank accounts
  • Details of authorized signatory
  • Photographs of authorized signatory

 

Type of Registration forms

There are different application forms for the GSTIN based on the nature of activity.

  • Application for Registration under Goods and Service Tax
  • Application for surrender of Registration under Goods and Service Tax
  • Application to opt out of composition scheme
  • Application for withdrawal from Composition Scheme
  • Application for amendments after registration

Open Items

  1. State Code for Registration Number –     This does not have any direct impact on the end user but on the tax distribution between the center and the states. As per the business process document, the list of states to   be considered is from the 2011 Census data. By that time there was no bifurcation  of the Combined State of Andhra Pradesh, then how the fund distribution is going to take between the states Telangana and AP as we are talking about destination principle for GST.
  1. State Code for Registration Number – business impact – If a registered person sells goods from Hyderabad to Vijayawada which are falling under two different states, as per the GST Registration  document  the state code is same, is IGST applicable on this transaction or not?
  1. AS 17 for registration number –   There is point in the registration number which says based on the line of business registration number can be obtained with a maximum combination of 35. But what is the     real     usage of it when it comes to the registration number? Such process is not available across the globe even in EU where we call it is as VAT, which is in place for more     than 20     years? How is the same going to be mapped or configured in the accounting softwares? What are the guide lines for this? Another question is as per AS 17, in segment reporting if the turnover is more than 10% then only it has to be reported. Assuming the turnover falls below 10% after two years, still the registration number by segment is applicable or not? Can it be merged with other registration numbers?
  1. Registration Numbers for different states –     As per the document if the entity is having presence in multiple states, registration number has to be obtained in the state where the goods or services being sold. Say for     Example if Company A is selling goods from Hyderabad to Mumbai, Delhi, Bangalore etc A tax invoice has to be issued and which must be accompanied along with the     goods.     Now on the tax invoice which registration number of the Company A is to be printed is it State from where the shipment is taking place or of the state where the     goods are     being shipped? Or is it that when I have dispatches from those states, then i need to print the registration number of the state along with the generic registration number?
  1. Date of application of Registration – In the document it is mentioned that the date of filing of the application for registration should be considered for the Input Tax Credit. Logically or legally how can the credit be     availed when there is no registration number? Is the returns software capable of handling such requirements, how will the system know about the date of application for     registration? I feel it would create more complexity in the whole process. Assume a buyer take the credit based on the date of application of the seller but latter the     registration is rejected by the tax authorities, what happens to the credit taken by the buyer?  Assuming that the returns software is prepared in such an intelligent way, will     the credit gets rejected in the subsequent month?
  1. Date on which liability to pay tax arises – If we see the registration form given in the Annexure III, the point # 8 talks about this? Under this does the user has a flexibility to determine the date on his own? If yes how     can the matching of records happen for the credit to be availed only based on the sellers payment? Or is it a common date, if it is common date, then why do we need to capture and show this? Or are we talking about for SGST, which is state specific, there can be different dates? If yes is not contradicting the basic principle of having common tax structure and process?
  1. Input Service Distributor – Say for example Company A is located in Pune and it is doing centralized procurement for all its offices in India and bills are raised on Pune Office. The Services are delivered        in Hyderabad, Chennai & Delhi etc. The service provider is based in Mumbai, since Pune and Mumbai are in the same state, there will be no IGST applicable but the     services        are delivered in different parts of the country? How input service is to be transferred to other offices as they are outside the State of Maharashtra? Is IGST applicable as services being delivered in different states? The place of supply rules must address all such requirements.
  1. Migration of the existing registration numbers – Is this required as i see lot of difference in the data elements captured between the states for VAT and Excise or Service Tax? Can data be migrated from different servers to a     single databases? How pratical is this as the document itself says some data is missing? This is going to open a can of worms. The government should desist for such a     process as it is a onetime activity and they should ask for fresh applications and can validate the new applications with existing data available to see all entities have been registered under GST.

Any views or opinions represented in this section are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.