GST Tip – 293

Posted on by CMA Bhogavalli Mallikarjuna Gupta

In section 4( B ) of GSTR – 3B, input tax credit availed at the time of inward supply being reversed on account of using the same inputs used for taxable supplies and exempted supplies. Reversal of such input tax credit has to be done for both the inputs and the capital goods. Input tax credit reversed for any other reasons issue of free goods or used for employee purpose or used for non-business purpose.

Demystifying Invoicing Under Model GST Law

Posted on by CMA Bhogavalli Mallikarjuna Gupta

Invoice is a document between the buyer and seller which confirms the sale / purchase of goods or services along with the details like item or nature of service, cost per unit, if any applicable taxes on the transaction, any incidental charges like freight, packing charges, etc., apart from the buyer and seller details. Invoice is to be serially numbered for tracking and reference purpose. If the transaction is being taken for a taxable good or service, then the invoice becomes a tax invoice. The tax invoice apart from having the above-mentioned details, it will also have the tax registration number of the buyer and seller along with the address under which jurisdiction the buyer and seller falls.

In the current tax regime in India we have the following invoices which are considered as tax invoice from taxation perspective Excise Invoice, VAT Invoice & Service Tax Invoice. All these invoices are also required to be numbered serially and the tax payer has to  inform the tax authorities the tax invoice numbering sequence being followed for the financial year.

Under GST also there is a requirement to issue tax invoice as per section 23 of the Model GST Law at the time of supply of goods or services as per Section 12 and Section 13 of the Model GST Law. Section 23 of the Model GST Law prescribes the information to be shown on the tax invoice in case of supply of goods

  • Description of the goods
  • Quantity of the goods being sold
  • Value of the goods being sold
  • CGST / SGST or IGST levied on the goods
  • And any other information as requested

The following information is to be shown in case of supply of services

  • Description of the service
  • Value of the service
  • CGST / SGST or IGST levied on the goods
  • And any other information as requested

If we dissect the Section 15 of the model GST Law (value of taxable supply) it says that all the amounts being collected or reimbursed from the buyer has to be included in the valuation of the taxable supply of goods / services. This means that all charges related to the transaction directly or indirectly have to be shown on the tax invoice. The charges or reimbursable expenditure on which the tax have to be levied are freight, insurance, packing charges, loading charges, unloading charges, special / specific charges being levied, subsidies if any, royalties or any other incidental charges have to be included in the tax base and these amounts are being paid by the buyer to the seller or being reimbursed by the buyer to pay to third parties.

THE JOINT COMMITTEE ON BUSINESS PROCESS FOR GST on Returns has given the tentative formats of the Returns to be filed under GST Regime once rolled out. If we review the GSTR 1 Report, monthly outward supplies report to be filed by the tax payer has the following information

  • GSTIN / UIN
  • Invoice – Number, Date, Value, HSN/SAC, Taxable Value
  • Tax Rate and Amounts – CGST / SGST / IGST
  • State of the buyer
  • Reverse Charge applicable for the transaction

Though the reports to be filed under GST are not yet notified, on interpreting the information given in the Model GST Law and the Business Process Reports for Returns we can conclude that the following information is to be shown on the tax invoice else reporting will become complex

  • Description of the goods / service
  • Quantity of the goods being sold – applicable only in case of supply of goods
  • Value of the goods / services
  • CGST / SGST or IGST levied on the goods
  • GSTIN / UIN
  • Invoice – Number, Date, Value, HSN/SAC, Taxable Value
  • Tax Rate and Amounts – CGST / SGST / IGST
  • State of the buyer
  • Reverse Charge applicable for the transaction
  • Free goods if any issued

We can also conclude that if goods or services being supplied are applicable or eligible under reverse charge, the same needs to be shown on the tax invoice stating that tax applicable is under the reverse charge and the tax amount should not be included in the invoice total. This is similar to the existing service tax provision for invoicing under reverse charge.

As per the valuation rules, if goods are being issued as sample or freebie on the purchase of any other goods, then GST has to be levied on such free good or freebie. It will be a business decision to collect the tax from the customer or absorb it as business expenditure. This is not applicable under VAT currently not it is getting extend to SGST or IGST under the new tax regime.

As per the Model GST Law, post to issue of a tax invoice for supply of goods or services, if there is any change in the price of goods / service or tax rates, a debit memo or credit memo can be issued for such cases and the debit / credit memo should have the reference of the original tax invoice. In GSTR – 1, the debit / credit memos have to be reported under table / section 8.

In case if the tax payer is supplying both taxable goods / services along with non-taxable goods / services, a separate bill has to be issued. This is similar to the existing VAT provisions where a non-vatable invoice has to be issued for sale of non-vatable goods. Now the same is getting extend to CGST and IGST under GST regime.

As in the current excise or VAT requirements there will not be likely a format being suggested by the GST Council and the tax payers can issue tax invoice based on their business need but have to ensure that all the required information is shown / printed on the tax invoice being issued under section 23 of the Model GST Law.

Malaysia which has implemented GST from 1st April 2015 have suggested some invoice formats also. It has also recommended that simplified tax invoice can be issued and on which input tax credit can be availed if the tax amount is not exceeding RM 30. As per Malaysian GST, under specific conditions simplified tax invoice can be issued and such invoices need not show the buyer details like in the case of regular tax invoice. In India, we do not see any such provisions as the Model GST Law has made it clear that input tax credit can be availed on supplier payment of GST Liability.

Some of the common issues which the trade and industry may face with rollout of GST on the Tax invoice front are

  1. Free Samples – as per the Model GST Law, the tax has to be levied on free samples also, this may impact the pharmaceutical industry where samples are given to Physicians for promotion. Now going forward GST has to be paid before the issue of samples. The pharmaceutical industry may have to absorb the same that means it impact their profitability. Same in case of consumer goods also where freebies are given on merchandise.
  2. Loading Charges – will there be a separate Service Accounting Code for loading and unloading charges, which are collected from the buyer. This is applicable in case of commodities like iron, steel, aluminum etc
  3. Insurance Charges – in some case where the goods are transported are high value, insurance is also part of such contracts / sales. The insurance charges may be collected from the recipient or the tax payer may pay himself. Whatever may be the case, does the tax payer has to levy GST on the insurance premium and also mention in his registration form “Insurance” also as his business?
  4. Packing charges – in some cases, the customers may ask for special packing based on their business requirements, in such cases also GST is to be levied on packing charges. As such packing charges may not be having a separate HSN code in few cases like material being shipped in gunny bags / jute bags, in such cases what will be the HSN code?

Another change from the existing business process

  1. In the case of purchase of goods or services from non-registred tax payers, the reverse charge is applicable and basing on the rules provided in Model GST Law, the time of supply for the reverse charge is either accounting or creation of receipt or payment of supplier whichever is earlier. At this point, a tax invoice is also required to be issued. Currently the same is not required in the Service Tax.
  2. In the draft rules it is clearly mentioned that separate invoice has to be issued for non-gst supply of goods or services individually if the transaction amount is less than Rs 100 or at the end of the month a consolidated document to be issued called bill of supply for all the transactions where bill of supply has been not issued during the day.
  3. The existing invoice number series has to be modified as the draft rules talks about only invoice series being alphabetical or numeric
  4. There is also a requirement to print the reference number generated from the common portal on the tax invoice
  5. There is no concept of tax invoice being cancelled under GST once issued, in case if there is a need for such a case, then taxpayer has to issue a debit or credit memo.

At this point of time we may not have the full information on the Tax Invoice under GST, but we have an overview of the same based on that we need to do critical analysis of the business and come out of open issues where clarity is required and make representations to the concerned authorities to avoid last minute surprises, which may impact the continuity of business when GST is rolled out.

From the Model GST Law and the Business Process Reports on Returns, it is clear that government wants to track each and every transaction and avoid possible revenue leakages. A silver lining for the trade and industry is that the Model GST Law has clearly stated that input tax credit can be claimed on the debit / credit memos also.

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.