india-gst.in – india-gst.in

No extension of last date for filing GSTR-1 for July, 2017

Posted on October 9, 2017October 9, 2017 by CMA Bhogavalli Mallikarjuna Gupta

No extension of last date for filing GSTR-1 for July, 2017 No extension of last date for filing GSTR-1 for July, 2017 The last date for filing GSTR-1 for the month of July, 2017 is 10th October, 2017. http://india-gst.in/no-extension-of-last-date-for-filing-gstr-1-for-july-2017/

GST Tip – 154

Posted on March 20, 2017March 20, 2017 by CMA Bhogavalli Mallikarjuna Gupta

Relevant date for the refund in case of export of goods by land is the date on which the goods pass the border and in the case of export of goods by post is the date on which the goods are dispatched by the concerned post office to place outside India

Demystifying Invoicing Under Model GST Law

Posted on October 1, 2016November 6, 2016 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 1^st 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

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.
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
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?
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

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.
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.
The existing invoice number series has to be modified as the draft rules talks about only invoice series being alphabetical or numeric
There is also a requirement to print the reference number generated from the common portal on the tax invoice
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.

Demystifying Draft Invoice Rules for Goods and Service Tax

Posted on September 27, 2016April 7, 2017 by CMA Bhogavalli Mallikarjuna Gupta

The Model GST Law was placed in the public domain on 14^th June 2016 and thereafter we could see a lot of moment on the implementation of GST like, passage of the Constitutional Amendment Bill the Rajya Sabha on 3^rd August 2016 and the same being ratified in the Lok Sabha on 8^th August 2016. Majority of the states have also adopted the same in their state assemblies in a very short span of time paving the way for the President to give the assent on the Constitutional Amendment Bill and thereafter the Central Government has constituted the Goods and Service Tax Council, key body for the rollout of GST in India. The GST Council had its first meeting on 22^nd and 23^rd of this month.

The GST Council in its first meeting has taken the following decisions

Increase the threshold limit from Rs 10 Lacs to Rs 20 Lacs for all states except for the north eastern states
Increase the threshold limit from Rs 5 Lacs to Rs 10 Lacs in case of north eastern states
The jurisdiction of the taxpayers will be with the state governments on the tax payers whose turnover is less than Rs 150 Lacs in case of supply of goods and in case of Service, the same will be with the central government as the state tax officials do not have the complete knowledge and expertise on the assessment of service tax. The same will be passed on to state governments once they have the expertise on the same down the line.

The government has issued the Draft Rules and these rules play a key role in the adoption of the GST by the trade and industry and also provide information on the do’s under GST. The Draft Rules are issued for the following areas

Draft Registration Rules
Draft Registration formats
Draft Payment Rules
Draft Payment formats
Draft Invoice Rules
Draft Invoice formats

Draft Invoice Rules

The information given in the Draft Invoice Rules is in addition to the information provided under Section 23 of the Model GST Law. It lists out all the elements to be shown on different documents likes the Tax Invoice, Bill of Supply, Supplementary Tax Invoice and Debit or Credit Notes and issue of tax invoice in special cases along with the Manner of Issue of Tax Invoice.

One of the important or major change is the same tax invoice is applicable for the Central as well as state taxes which is not the case in the current tax requirements.

The Manner of issue of tax invoice is similar to the provisions given in Central Excise with

(a) the original copy being marked as ORIGINAL FOR RECIPIENT;

(b) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER; and

From the above, it is clear that goods have to be accompanied with the tax invoice, as the point b says duplicate for the transporter. There is an interpretation that under GST, tax invoice need not accompany the goods.

The usage of the word gives room for one more taught in case of branch transfers, the FAQ’s released by the department says that in case of branch transfer there is no need to issue tax invoice, if it is within the state, but when the goods are being shipped with what document the same should be sent. Do we have a concept of Challan or some other document? We need to wait for some more time on clarity on such transactions.

The information to be shown on the Tax Invoice

(a) name, address and GSTIN of the supplier;

(b) a consecutive serial number containing only alphabets and/or numerals, unique for a financial year;

(d) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(e) name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered and where the taxable value of supply is fifty thousand rupees or more;

(f) HSN code of goods or Accounting Code of services;

(g) description of goods or services;

(h) quantity in case of goods and unit or Unique Quantity Code thereof;

(i) total value of goods or services;

(j) taxable value of goods or services taking into account discount or abatement, if any;

(k) rate of tax (CGST, SGST or IGST);

(l) amount of tax charged in respect of taxable goods or services (CGST, SGST or IGST);

(m) place of supply along with the name of State, in the case of a supply in the course of inter-State trade or commerce;

(n) place of delivery where the same is different from the place of supply;

(o) whether the tax is payable on reverse charge;

(p) the word “Revised Invoice” or “Supplementary Invoice”, as the case may be, indicated prominently, where applicable along with the date and invoice number of the original invoice; and

(q) signature or digital signature of the supplier or his authorized representative.

Provided that the Board/Commissioner may, by notification, specify –

(i) the number of digits of HSN code for goods or, as the case may be, the Accounting Code for services, that a class of taxable persons shall be required to mention, for such period as may be specified in the said notification, and

(ii) the class of taxable persons that would not be required to mention the HSN code for goods or, as the case may be, the Accounting Code for services, for such period as may be specified in the said notification:

The above information to be provided on the Tax Invoice is similar to that of the information we provide on the excise invoice expect for not showing the range and divisional details of the central excise.

The following are the notable differences under GST on comparing with the existing tax invoice

HSN code to be shown mandatorily on the tax invoice for all the taxes
Service Tax accounting code to be shown, which is not there currently
In case of supply of goods, the reverse charge details have to be shown on the tax invoice, this is similar to the current provision for services
There is a restriction on the invoice number format, it says it has to be either numerical or alphabetic only. The reason for this could be upload of invoices and matching as a string can cause problems in some of the system checks
Rule 1 (j) talks about abatement to be shown on the tax invoice, but if we see the format of the tax invoice there is no specific provision where we can show the same. Probably the tax rate to shown is net of abatement. If such is the case, the validation in the common portal should be built accordingly.
Sub-Rule 4 of Rule 2 talks about the Invoice Reference Number, which needs to be shown on the tax invoice and this number can be obtained only after uploading the same on the common portal. Does that mean, the tax invoice has to be printed only after obtaining this number? The same is given clearly in the format of the tax invoice given by the department.This means that before every shipment goes out, the tax invoice has to be uploaded on the common portal and reference number is to be derived and then printed on the tax invoice. It also means that internet connection is mandatory now and it will be challenge in case of plants located in remote locations.
No longer required to maintain two different series of tax invoices for domestic and exports as in central excise today. It will be an organizational call.

There are some special cases under which a Tax Invoice can be issued like for exports on payment of duty or export under bond. Another interesting to be noted is that, it talks about the printing of the ARE -1 number on the tax invoice, does this mean that we will still have the concept of deemed exports under GST, where goods can be purchased under existing process only. This is contrary to the views expressed by the trade and industry and tax consultants.

In the above cases, the invoice has to be endorsed clearly under which the exports are under which the supply is taking place “SUPPLY MEANT FOR EXPORT ON PAYMENT OF IGST” or “SUPPLY MEANT FOR EXPORT UNDER BOND WITHOUT PAYMENT OF IGST”. In such cases the information shown in Clause (e) has to be replaced with the following information

name and address of the recipient;
address of delivery;
name of the country of destination; and
number and date of application for removal of goods for export [ARE-1].

In case of services, the existing provisions of issue of service tax invoice to be issued within 30 days on completion of service is retained under GST also.

There is also a provision for issue of supplementary invoices or debit or credit notes in line with section 23 of the Model GST Law. The Model GST Law or the Invoice rules does not talk about the provision of issue of debit or credit notes in case of shortage or rejections or transit loss on quantity. This remains an open question.

Rule 4, does not talk about the above requirements but asks for showing the following information on these documents

(a) name, address and GSTIN of the supplier;

(b) nature of the document;

(c) a consecutive serial number containing only alphabets and/or numerals, unique for a financial year; (d) date of issue of the document;

(e) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(f) name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered;

(g) serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;

(h) taxable value of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient; and

(i) signature or digital signature of the supplier or his authorized representative.

The rules also give a provision to issue a consolidated revision documents for non-registered taxable supplies, in case if the need arises. There is also a provision to issue a consolidated revised document in case of interstate supplies also if the amount is less than Rs 2.50 Lacs

Rule 5 details about the provision on the issue of tax invoices in special cases like by input service distributor or a banking company or a transport operator.

The tax invoice to be issued by the input service distributor should contain the following information

(a) name, address and GSTIN of the Input Service Distributor;

(b) a consecutive serial number containing only alphabets and/or numerals, unique for a financial year;

(d) name, address and GSTIN of the supprovies plier of services, the credit in respect of which is being distributed

and the serial number and date of invoice issued by such supplier;

(e) name, address and GSTIN of the recipient to whom the credit is distributed;

(f) amount of the credit distributed; and

(g) signature or digital signature of the supplier or his authorized representative:

In the case of banking company or non-banking company or a financial institution, should show the information mentioned in Sub-Rule 1 of Rule 5 by calling the document in whatsoever name even though it is not serially numbered.

Not sure how will the common portal handle such cases as there is serial number for these transactions and also will there be a provision to upload the documents without serial number i.e invoice number? There can be cases where the banking charges are more than Rs 2.50 Lacs especially in case of Letter of Credit or bill discounting etc.

In case of goods transport agency, the information given in the sub-rule 1 of Rule 5 should be contained along with the gross weight, net weight, name of the consignor and the consignee, registration number of goods carriage in which the goods are transported, details of goods transported, details of place of origin and destination, GSTIN of the person liable for paying tax whether as consignor, consignee or goods transport agency, and also contains other information as prescribed under rule 1.

Bill of Supply

Rule 3 is in line with the provisions of Section 23 of the Model GST Law, where in the tax payer deals with exempted supplies, he can issue a bill of supply in lieu of tax invoice and it should contain the following information

(a) name, address and GSTIN of the supplier;

(b) a consecutive serial number containing only alphabets and/or numerals, unique for a financial year;

(d) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(e) HSN Code of goods or Accounting Code for services;

(f) description of goods or services;

(g) value of goods or services taking into account discount or abatement, if any; and

(h) signature or digital signature of the supplier or his authorized representative:

The taxpayer need not issue a bill of supply if the transaction value is less than Rs 100 unless asked by the buyer.

The taxpayer has to issue a consolidated bill of supply end the day for all the cases where he has not issued a bill of supply during the day. This provision is again to keep track of all such transactions which are not being tracked directly.

From the invoice formats it is clear that in case of costs like freight, insurance, packing charges should be part of the taxable value of the goods.

Demystifying Time of Supply of Services under Model GST Law – Part II

Posted on August 2, 2016November 6, 2016 by CMA Bhogavalli Mallikarjuna Gupta

In the First Part “Demystifying Time of Supply of Services under Model GST Law” we have seen the various provisions for the time of supply for services under the Model GST Law. Now in the section of the article, we will see the impact of the rate change on the time of supply of services along with few open items for which we need to have clarity in the GST Bill. Section 14 of the Model GST Laws lays down the various provisions for the tax rate implications on the supply of services for tax rate changes.

Service Provided before the change of tax rate

Sub-Section 1 (a) of section 14, lays down the provision for the treatment of tax change in case the taxable service has been provided before the change in the effective tax rate.

For our analysis let’s consider a case that the tax rate till 30^th Nov 2017 is 18% and from 1^st Dec 2017 the tax rate is being increased to 18.5%.

Sub-Section 1 (a) of Section 14

(i) where the invoice for the same has been issued and the payment is also received

after the change in effective rate of tax, the time of supply shall be the date of receipt of

payment or the date of issue of invoice, whichever is earlier; or

Illustration -1

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 5^th Dec 2017 and completed the service on 20^th Nov 2017 and received the payment on 10^th Dec 2017.

In this case, the service has been provided before the change of the tax rate i.e prior to 1^st Dec 2017 and the earliest date and the time of supply is 5^th Dec 2017 as invoice is issued on 5^th Dec 2017 and payment is received on 10^th Dec 2017 (earliest of the invoice or the payment date). The tax rate applicable here is 18%.

Illustration -2

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 15^th Dec 2017 and completed the service on 20^th Nov 2017 and received the payment on 7^th Dec 2017.

In this case, the service has been provided before the change of the tax rate i.e prior to 1^st Dec 2017 and the earliest date and the time of supply is 7^th Dec 2017 as payment is received 7^th Dec 2017 invoice is issued on 15^th Dec 2017 (earliest of the invoice or the payment date). The tax rate applicable here is 18%.

Sub-Section 1 (a) of Section 14

(ii) where the invoice has been issued prior to the change in effective rate of tax but the

payment is received after the change in effective rate of tax, the time of supply shall be

the date of issue of invoice; or

If the invoice is issued prior to the date of the change in effective tax rate and service is completed before the same date, then the effective tax rate will be the older rate only.

Illustration -3

B Ltd enters into a contract to provide special security with C Ltd for their factory located in Badi from the period 1^st Nov 2017 to 30^th Nov 2017. B Ltd issues an invoice on 25^th Nov 2017 and receives payment on 9^th Dec 2017.

Invoice has been issued on 25^th Nov 2017 and service is completed on 30^th Nov 2017 and these two dates are before the date of effective change of tax rate, the time of supply for services is 25^th Nov 2017, so the effective tax rate will be 18%.

Sub-Section 1 (a) of Section 14

(iii) where the payment is received before the change in effective rate of tax, but the

invoice for the same has been issued after the change in effective rate of tax, the time of

supply shall be the date of receipt of payment;

If service is completed and payment is also received before the tax rate change, then the tax rate applicable will be old rate only and not the new tax rate.

Illustration -4

B Ltd enters into a contract to provide special security with C Ltd for their factory located in Badi from the period 1^st Nov 2017 to 30^th Nov 2017. B Ltd receives payment on 19^th Nov 2017 and issues an invoice on 4^th Dec 2017.

Payment has been received on 19^th Nov 2017 and service is completed on 30^th Nov 2017 and these two dates are before the date of effective change of tax rate, the time of supply for services is 19^th Nov 2017, so the effective tax rate will be 18%.

Service provided after the tax rate change

Sub-Section 1 (b) of section 14, lays down the provision for the treatment of tax change in case the taxable service has been provided / completed after the change in the effective tax rate.

For our analysis let’s consider a case that the tax rate till 30^th Nov 2017 is 18% and from 1^st Dec 2017 the tax rate is being increased to 18.5%.

Sub-Section 1 (b) of Section 14

(i) where the payment is received after the change in effective rate of tax but the

invoice has been issued prior to the change in effective rate of tax, the time of supply

shall be the date of receipt of payment; or

Illustration -5

X Ltd agrees to do preventive maintenance for all the critical machinery in the factory by 25^th of Dec 2017 and accordingly it has received payment on 28^th of Dec 2017 and issued an invoice on 27^th of Nov 2017 on completion of service.

In the above case, the time of supply will be the date on which payment has been received i.e 28^th Dec 2017 and the effective tax rate would be 18.5% as service is completed after the tax rate change.

Sub-Section 1 (b) of Section 14

(ii) where the invoice has been issued and the payment is received before the change in

effective rate of tax, the time of supply shall be the date of receipt of payment or date of

issue of invoice, whichever is earlier; or

In case if the invoice is issued and payment is also received before the date of tax rate change, then the time of supply of service will be earlier of the invoice date or payment receipt date and the tax rate applicable will be old rate only.

Illustration -6

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 15^th Nov 2017 and completed the service on 20^th Dec 2017 and received the payment on 17^th Nov 2017.

In the case, the effective tax rate would be 18%, as the time of supply is 15^th Nov 2017, this is the earliest date of issue of invoice or receipt of payment.

Illustration -6

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 10^th Nov 2017 and completed the service on 20^th Dec 2017 and received the payment on 7^th Nov 2017.

In the case, the effective tax rate would be 18%, as the time of supply is 7^th Nov 2017, this is the earliest date of issue of invoice or receipt of payment.

Sub-Section 1 (b) of Section 14

(iii) where the invoice has been issued after the change in effective rate of tax but the

payment is received before the change in effective rate of tax, the time of supply shall

be the date of issue of the invoice.

A Ltd agrees to do the service of diesel generator and accordingly it has issued an invoice on 10^th Dec 2017 and completed the service on 20^th Dec 2017 and received the payment on 7^th Nov 2017.

In this case, the time of supply will be the issue of invoice date i.e 10^th Dec 2017 and the tax rate will be 18.5%

Though the law is very clear on the time of supply of services in case of tax rate changes, the following are the challenges

What should be the treatment in case if the payment received is partial to the contract value. In such cases, will the tax rates apply to the extent of the amount received? We need clarity on this, hope it will be taken into consideration.
Though GST is dubbed to the ease of doing business but seeing the laws above, it is clear that is very complex and manual intervention is required as any of the accounting packages will not be able to handle this correctly. Persons handling this portion of the business have to be trained to ensure that there are no compliance issues.
What should be the accounting treatment if there is change in financial year in case of Illustration 5 if we extrapolate the same with this example

As per law – (i) where the payment is received after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the time of supply shall be the date of receipt of payment; or

Assuming tax rate change is from 1st of April 2018 i.e from new financial year

X Ltd agrees to do preventive maintenance for all the critical machinery in the factory by 25th of April 2018 and accordingly it has received payment on 10th of April 2018 and issued an invoice on 27th March 2017.

In the above case, the time of supply will be the date on which payment has been received i.e 10th April 2018 and the effective tax rate would be 18.5% as service is completed after the tax rate change.

Will there be similar rules for the supply of goods also, there can be cases like this when goods also ?

All the above issues need to be addressed before the GST bill is passed else we will have lot’s of confusion and leads to compliance issues.

These interpretations and examples are based on the model law and may change based on the actual law passed.

Demystifying the road ahead for the rollout of GST in India

Posted on July 28, 2016November 6, 2016 by CMA Bhogavalli Mallikarjuna Gupta

There is a lot of buzz on the GST in India again for about last 45 days or so when the Model GST Law has been announced. There are lots of discussions, views, articles on the Model GST Law on the pros and cons of the same. For GST to be a reality in the near future or a dream forever (for the obvious reason that there is no consensus among all the political parties).

IMG_20160716_131210

This is a pic taken during my recent trip to Meghalaya

For Goods and Service Tax to be implemented in India, these are steps to be followed

Get all the stakeholders i.e. political parties consensus on the RNR and tax administration (seems to have been achieved to a greater extent based on the meeting of state Finance Ministers and Central Finance Minister)
Cabinet note to be approved for the changes proposed in the State Finance Ministers meeting on 26^th July 2016. It got approved based on the articles on various news sites.
As per plan allow discussion / debate agreed on in Business Advisory Committee for 5 hours in Rajya Sabha before the curtains pulled out for the monsoon session. Not listed in the list of business for 28^th July 2016 or on 29^th July 2016. Need to wait and see when the same will discussed.
Table the revised Constitutional Amendment Bill – One Hundred and Twenty-Second based on the cabinet note approved on 27^th July 2016 for voting and get the same passed with 2/3^rd
Once the bill is passed, send the same to Lok Sabha for voting, as there are changes to the bill based on the select committee recommendations and discussion based on state finance ministers meeting.
Once approved in Lok Sabha, the bill has to be sent to the President for his assent.
Since it is a Constitutional Amendment Bill at least 15 states have to pass the bill in their respective state assemblies.
GST Council has to be constituted and it has to conclude on the rates for GST, abatement if any, list of goods under reverse charge, negative list of goods and services, etc
Views of the trade, industry and citizens of the nation on The Model GST Law has to be considered and incorporated based on the suggestions given. Get the nod for the same from the State Finance Ministers on the proposed changes.
Formulate the same into a bill and get the Cabinet approval
Introduce the CGST and IGST Bills in Lok Sabha
CGST and IGST Bills to be passed in Rajya Sabha ( to be tabled as Finance Bill or Monetary Bill to be decided) during the Winter Session of Parliment
On a parallel track, the IT infrastructure of the state and central tax departments have to be scaled up to meet the GST requirements of capturing transactional level data right from the Day one. Alternatively, we can go for the summary returns in the beginning and then scale up to this level at a later point of time and amend the reports. It may look simple but will be a challenge to implement the same.
Training of the Tax officials of both the State and the Central to gear up for the new tax regime
Industry has to train its teams to brace for the changes

As of now, we have achieved only the first step, still have a long road to travel. The rollout date of GST on 1st April 2017 seems to be very ambitious. The possible dates can be 1st July 2017 or 1st Oct 2017 or 1st Jan 2018. The date of 1st Jan 2018 can also be considered if the Central Government decides to change the financial year from Apr -March to Jan – Dec, this date would be idle but can have a negative impact on the upcoming Central elections on account of inflation. Though inflation on the implementation of GST is global trend, in India we may not have as we already have taxes at higher rate.

Demystifying Input Tax Credit under the Model GST Law

Posted on July 13, 2016November 6, 2016 by CMA Bhogavalli Mallikarjuna Gupta

Input Tax Credit, the word which every business person, accountant or cost accountant loves to listen to this and also avail the same on all the purchases made for business. We have seen tax reforms in India for input tax credit under various name, MODVAT was introduced in the year 1986 on certain items with an intention of passing on the tax credit on the purchases, and it has been modified from time to time and finally CENVAT Credit Rules 2004 were introduced where the input tax credit for the Central Excise Taxes was available on most of the inputs and in case of capital goods with some conditions. The taxes levied by the state governments is known as sales tax before the introduction of VAT, and the same were not eligible for input tax credit. As a result, there is an increase in the cost of production of goods and services. When Value Added Tax was introduced, this issues is also addressed, and input tax credit was available. In spite so many tax reforms from time to time on the input tax credit front, the trade or industry is not happy as it is very restrictive when we take a holistic approach like

Input tax on value added tax is not available for service providers
Taxes on inter-state sales, e., CST is not eligible for input tax credit
Inter utilization of input tax credit like VAT cannot be used for payment of Service tax or vice versa.
Input tax credit cannot be availed on capital goods immediately as in the case of inputs for central excise or VAT. In the case of VAT, it varies from state to state.

These were some of the challenges which the trade or industry is facing with input tax credit, but going forward under GST, the same are addressed but with some restrictions / limitation. Input tax credit under the Model GST law is given to a large extent very clearly under sections 16 to 18 of Chapter V, Section 28 and Section 29 explains the process of input tax credit, provisional claim, reversal, etc. in chapter VIII, section 37A explains the process of transfer of input tax credit and Section 147 on the transitional provisions for cenvat and VAT tax credit.

Section 2, sub-section 54 defines what are inputs “input” means any goods other than capital goods, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business;

The input means any goods other than capital goods used or to be intended to be used for making the supply of goods or services. It means all inputs used for making of taxable supplies are eligible for input tax credit.

Section 2, sub-section 55 defines “input service” means any service, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business;

Input service means any service used by the taxpayer / supplier for making of outward supplies.

Section 2, sub-section 57 defines input tax “input tax” in relation to a taxable person, means the {IGST and CGST}/{IGST and SGST} charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7;”

Taxes paid on the purchase of goods and services which are eligible for input tax credit are used for making the output tax liability on the supply of goods and services.

Section 2, sub-section 20 defines capital goods as “capital goods” means: –

(A) the following goods, namely:-

(i) all goods falling within Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the Schedule to this Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof;

(vii) storage tank; and

(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis but including dumpers and tippers used-

(1) at the place of business for supply of goods; or

(2) outside the place of business for generation of electricity for captive use at the place of business; or

(3) for supply of services,

(B) motor vehicle designed for transportation of goods including their chassis registered in the name of the supplier of service, when used for

(i) supplying the service of renting of such motor vehicle; or

(ii) transportation of inputs and capital goods used for supply of service; or

(iii) supply of courier agency service;

(C) motor vehicle designed to carry passengers including their chassis, registered in the

name of the supplier of service, when used for supplying the service of-

(i) transportation of passengers; or

(ii) renting of such motor vehicle; or

(iii) imparting motor driving skills;

(D) Components, spares and accessories of motor vehicles which are capital goods for the taxable person.

Reading the above section, it is apparent that the definition is taken from the current provisions of the central excise and replaced with few words here and there. Going forward under GST also the treatment for inputs and capital goods will be same to a large extent expect in case of definition what is capital good and what is input.

Section 16 of the Model GST Act provides the provisions for input tax credit. Similar to the age-old excise registers, RG 23 Part I / II – A /C for tracking the input credit maintained by the assesses, we have similar concept called electronic credit ledger and this ledger is maintained by the tax authorities / infrastructure provider of GST and all the taxes paid by the suppliers for the supplies made to this tax payers gets updated in the electronic ledger, the amount can be utilized for making payment of out liability, penalty, interest, or any amount as per provisions of section 35 of the Model GST Act.

Sub-section 2 of Section 16 provides a clear mandate that in case of a business or entity which has opted for the GST registration, the taxes paid by him on the stock held by him on input, semi-finished goods and finished goods immediately on the day he is eligible to pay tax, will be eligible to take input tax credit of such goods. The reason for providing such a provision is that as the tax is being levied on the sales immediately from the date of registration, the taxes paid on his purchases. These provisions are available for the following person

Persons who have opted for registration on crossing of the threshold as specified under section 8, person who crosses the thresholds
Persons who have opted for voluntary registration in spite of not crossing the threshold limits as prescribed

The eligible input tax credit in the above cases will be computed based on the following

The tax invoice should not be more than 12 months old
The amount of tax credit eligible will be computed based on the accepted accounted principles.

What does these accepted principles mean? There is no clarity on this. Hope this will not lead to some interpretation issues from the department on the valuation and also on the amount of input tax credit.

Sub-section 5 explains about the usage of goods and services brought but used for business as well as for personal consumption.

Where the goods and/or services are used by the registered taxable person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

Illustration

A Ltd buys laptops each costing Rs 45,000 and in that he gives one of the laptops for his college going, son.

In the above case, the input tax credit is eligible for only 4 laptops as the fifth one is not used for business purpose.

Sub-section 6 explains the manner of taking input tax credit in the case in the inputs procured are used for making taxable supplies and non-taxable supplies.

Where the goods and / or services are used by the registered taxable person partly for effecting taxable supplies and partly for effecting non-taxable supplies, including exempt supplies but excluding zero-rated supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero-rated supplies.

Illustration

XYZ Ltd is an electronic goods manufacturer and manufactures both taxable and non-taxable supplies. XYZ Ltd purchases Polyvinyl chloride (PVC), and he makes industrial goods along with doors and windows for residential purpose. Industrial goods manufactured are taxable, and doors and windows used for the residential purpose are tax exempted. When PVC is purchased, it is not known who much will be used for taxable and non-taxable supplies.

The input credit on the purchase of PVC should be reversed to the extent used for manufacturing / sale of doors and windows as they are exempted from tax.

The government will notify the amount of the input tax credit to be reversed and the process to be followed in the above two cases. Based on that it has to be reversed.

In the normal course of business, the business establishment can be sold or merged, or the constitution of it can change from a partnership to the company, etc., in all such cases, the input tax credit will be allowed to be used by the new legal entity. The same is described in sub-section 8 of section 16.

Where there is a change in the constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision for transfer of liabilities, the said registered taxable person shall be allowed to transfer the input tax credit that remains unutilized in its books of accounts to such sold, merged, demerged, amalgamated, leased or transferred business in the manner prescribed.

Input tax credit is allowed only under the following conditions

The supplier of goods and services has paid the tax
The goods or services must be received / deemed to be received
The buyer / recipient is in possession of the tax invoice
The tax returns are filed by the supplier of goods / services
Input tax credit can be taken within 1 year from the date of issue of tax invoice
In case if input tax credit is taken on a provisional basis and the supplier does not pay the tax, the same will be reversed along with interest.
In case if the supplier pays the tax after reversal, then he is eligible to take the input tax credit along with the interest.

As in the current taxation, input tax credit is not allowed in some cases, and such cases are listed clearly in the Model GST law clearly under sub-section 9 and 10 of section 16.

(a) motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services—

(i) transportation of passengers, or

(ii) transportation of goods, or

(iii) imparting training on motor driving skills;

(b) goods and / or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/or services are used primarily for personal use or consumption of any employee;

(c) goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;

(d) goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;

(e) goods and/or services on which tax has been paid under section 8; and

(f) goods and/or services used for private or personal consumption, to the extent they are so consumed.

Sub-Section 10 Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component.

Section 16A of the Model GST Act lays down the procedures for claiming input tax credit for materials / capital goods sent for job work.

Section 43 of the Model GST Act, gives the procedure for job work on GST. In the normal course of business, the material is received at the taxpayers place and then the same is shipped to the job worker or subcontractor if required for further processing. In such cases where the material is shipped directly to job worker, the input credit can also be claimed, and the process is prescribed under section 16A of the Model GST Act.

Input Credit in case of Inputs

Input tax credit on the material sent to job worker is allowed only when they are returned within 6
Credit can be availed only if the supplier pays the tax.
In the case of material already sent before the rollout of GST, 6 months should be computed from the accounted date of the GST rollout, mentioned in the transitional provisions of Section 150 of the Model GST Act.

Input Credit in case of Capital goods

The treatment for capital goods is different from that of the inputs for availing input tax credit.

The input credit for capital goods can be taken if the goods capital goods is used by the job worker and the same is returned within 2 years from the date on which it is sent out to job worker.
In case if the inputs or the capital goods are not returned within in the stipulated period, the taxpayer has to pay an equivalent amount of input tax credit availed along with interest. In such cases, interest is also required to be paid as prescribed under sub-section 1 of section 36.

The input tax credit will be allowed only if the supplies of the seller and buyer are matched, in the case of any mismatch, the same is informed to the supplier and recipient by the GSTN for rectifying the mistakes. The returns have to be matched as well as the taxes have to be paid for availing the credit. The process is mentioned in sub-section 28 and 29 of the Model GST Act.

There is a provision to take input tax credit on provisional basis by the recipient without waiting for the tax being paid by the supplier of goods or services. In such cases, the recipient has to enter these invoices manually in the GSTR -2. A window period of two months is given for matching of the records, and if the same does not happen within this period, the input tax credit taken on such invoices will be reversed along with the interest for the two months.

Once the supplier pays the same, the records will be verified and matched by GSTN, once it is matched, the recipient will be eligible to take the input tax credit along with the interest paid. The only challenge with is process is that the ratings of the recipient will be impacted as the department has taken the approach of giving ratings for all the taxpayers based on their tax payment, the filing of returns from time to time.

The taxpayer has to take a judicious call on to take the credit on the provisional basis or wait for payment of taxes till the supplier pays the taxes. In the case of the second approach, there may be some impact on the cash flows and working capital management. While making purchases or entering into contracts, the tax history of the supplier of goods and services also has to be considered along with the quality, delivery, prices and other factors. This will amount to change in the business process, and for this to be implemented, the concerned teams have to be trained accordingly.

Input Service Distributor

Under GST also there is a provision for registration as Input Service Distributor similar to the current provisions. Section 17 of the Model GST Act lays down the procedure for distribution of the input tax credit by Input Service Distributor.

The credit of CGST can be transferred as IGST input tax credit if the input service distributor and the recipient of credit are located in different States.

The credit of SGST can be transferred as IGST input tax credit if the input service distributor and the recipient of credit are located in different States.

The credit of SGST & IGST can be transferred as SGST input tax credit if the input service distributor and the recipient of credit are located in same State.

To conclude the input tax credit process is simple under GST as per the Model Law provisions but only the difference with the current regulations is that input tax credit can be availed only on payment of taxes by the supplier. The government wants to ensure that there is no revenue leakage on account of black sheep and also safeguard its revenue collections.

Utilization of Input Tax Credit

This is one the most important change in the input tax credit process compared to the current process under various tax regulations. The major drawbacks under the current tax regulations are

Input tax credit on all business expenses is not allowed like VAT credit is not allowed for a service provider
Excise / Service Tax credit, e., CENVAT Credit is not utilized for payment of VAT liability or vice versa
Input tax credit is not eligible for all taxes like CST applicable on interstate transactions.

All these are being addressed in the GST to a large extent with some restrictions but by large very useful for the business / industry as a whole. This will ensure that input tax credit is available in whole supply chain process seamlessly and thereby providing a feasibility of lowering the cost of goods and services and pass on the benefits to the end consumer.

Central Goods and Service Tax – input tax credit of Central Goods and Service tax has to be utilized for payment of Central Goods and Service Tax liability, and if any amount is remaining, the same can be used for payment of a liability of Integrated State Goods and Service Tax.

CGST Credit

State Goods and Service Tax – input tax credit of State Goods and Service tax has to be utilized for payment of State Goods and Service Tax liability, and if any amount is remaining, the same can be used for payment of a liability of Integrated State Goods and Service Tax.

SGST Credit

Integrated State Goods and Service Tax – input tax credit of Integrated Goods and Service tax has to be utilized for payment of Inter-State Goods and Service Tax liability, and if any amount is remaining, the same can be used for payment of liability of Central Goods and Service Tax and if credit is still available the same can be used for payment of liability of Inter-State Goods and Service Tax.

IGST Credit

These examples are based on the model law and may change based on the actual law passed.

Demystifying Supply under the Model GST Law

Posted on July 4, 2016November 6, 2016 by CMA Bhogavalli Mallikarjuna Gupta

Currently, taxes are levied on manufacturing or removal of goods in case of central excise and on sales in case of value added tax. In the Model GST law sale or manufacturing or removal of goods is being replaced with the word “supply”. The word supply is expanding the scope for levy of tax as well as reducing the scope of interpretation. Though the word supply is a broader word compared to sales, the definition for the supply of goods and services is given very clearly under the Model Law. Since supply is being used in place of supply, taxes will be applicable on some of the transactions like branch transfers and supply of material for job work is outside the scope of supply.

In the current tax regulations in India, we have multiple taxes like Central Excise, Value Added Tax, Central Sales Tax and local levies like Octroi in few cities. There is no proper definition for sale under any of the above laws, this gives a wider scope for interpretation and raises disputes between the industry and tax regulators. If have a close look at the Central Excise Act, as per Section

2, sub-section (h) it is, “sale” and “purchase”, with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration;

As per Gujarat Value Added Tax 2005, Section 23 ,

“sale” means a sale of goods made within the State for cash or deferred payment or other valuable consideration and includes,-

(a) transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration,

(b) transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract,

(d) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration,

(e) supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration,

(f) supply of goods by a society or club or an association to its members on payment of a price or of fees or subscription or any consideration,

(g) supply of goods by way of or as part of any service or in any other manner whatsoever, of

(h) supply of goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration,

(i) supply by way of barter of goods,

(j) disposal of goods by a person in the manner prescribed in

Explanation (iii) to clause 10 but does not include a mortgage, hypothecation, charge or pledge; and the words “sell”, “buy” and “purchase” with all their grammatical variations and cognate expressions shall be construed accordingly.

Explanation.- (i) – For the purposes of this clause, “sale within the State” includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Act;

(ii) for the purpose of sub-clause (b) of the expression “works contract” means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify;

(iii) every transfer of property in goods by the Central Government, any State Government, a statutory body or a local authority for cash, deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act;

As per Central Sales Tax Act 1956 sale is defined as per section 2, sub-section (g ) as

“sale”, with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and includes,–

a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
a delivery of goods on hire-purchase or any system of payment by installments;
a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
a 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 (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, but does not include a mortgage or hypothecation of or a charge or pledge on goods;

We have seen three different acts, and the meaning of sale is different, this leads to confusion on levy of taxes, say for example in the case of the lease transaction, is VAT applicable or service tax is applicable or both? It is left for the judiciary to decide the applicability and levy of tax. By going through the definitions of the lease, sales, service tax, etc. it is clear that for a lease there is a transfer of ownership, that means sales tax is leviable under Article 366(29A)(c) of Constitution and states can levy a tax on lease transactions under Entry 54 of List II. Going forward under GST as there is only one tax for goods and services, this confusion does not arise and moreover, in the definition of supply, it is clearly mentioned supply includes Lease as per section 3 of the Model GST Act.

(1) Supply includes

(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,

(b) importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and

Illustrations

Let’s try to understand the meaning and scope of supply with few examples

Illustration for transfer

A Ltd has a manufacturing unit in State X and sales depots in states Y & Z. A Ltd transfers it’s finished goods from factory to depots. When goods are transferred from Factory to depot GST is applicable or not?

As per the definition of Supply under Section 3, supply includes transfers, so GST is applicable on transfers also. Under the current laws only excise duty is applicable on transfers but going forward under GST even VAT, i.e., SGST is also applicable along with CGST and in the case of inter-state transfers IGST will be applicable.

Illustration for Exchange

A walk in customers enters into an Electronics Shop and wishes to buy a new laptop by exchanging his old laptop. The price of the new laptop is Rs 46,000 and under the exchange, he pays on Rs 34,000. Under GST tax payable on which amount? Rs 46,000 or Rs 34,000.

GST is payable on Rs 46,000 as the definition of the supply includes exchange, under GST on the exchange also GST is to be levied, and this is a change in the business process which retailers have to adopt it, and consumers must also accept the fact that tax has to be paid on exchanged products.

Illustration for Importation of Service

C Ltd hires services of a service engineer for one of its machinery imported for annual maintenance. Is GST applicable on this transaction?

Yes, GST is applicable on this transaction as subsection 2 of section 3 of the model GST Act clearly states that GST is applicable in the case of importation of services also.

Illustration for transfer of assets

XYZ Ltd is an IT company and uses desktops and laptops. As policy change, XYZ decides to upgrade all the desktops to laptops and decides to donate the desktops to a government school so that students there can gain computer literacy. Is GST applicable on this transaction as consideration is not being received as it is a charity?

Yes GST is applicable on this transaction as there is a transfer of business assets from XYZ’s name to the school. GST has to be levied based on the transaction price.

Illustration for disposal of business assets

PQR Ltd wants to enhance its manufacturing capacity to retain more market share. It decides to sell the existing machinery. If GST applicable on sale of machinery?

Yes, GST is applicable on sale of old machinery as it is business asset

Illustration for temporary application of business assets for private use

B runs earth moving equipment hiring business and rents out JCB’s, procaliner, etc. on rental basis. B acquires a residential plot for construction of his house; he puts to uses one JCB at the plot to make it for leveling for the ground, is GST applicable on this transaction.

Yes, GST is applicable as the business asset is put to use for personal use, B Ltd has to pay GST on this as business and individual are different entities.

Schedule II of the Model GST Act explains clearly to distinguish the what is a supply of goods and what is a supply of services.

Transfer

(1) Any transfer of the title in goods is a supply of goods.

(2) Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services.

(3) Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed, is a supply of goods.

Land and Building

(1) Any lease, tenancy, easement, licence to occupy land is a supply of services.

(2) Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

Treatment or process

Any treatment or process which is being applied to another person’s goods is a supply of services.

Transfer of business assets

(1) Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person.

(2) Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.

(3) Where any goods, forming part of the business assets of a taxable person, are sold by any other person who has the power to do so to recover any debt owed by the taxable person, the goods shall be deemed to be supplied by the taxable person in the course or furtherance of his business.

(4) Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless—

(a) the business is transferred as a going concern to another person; or

(b) the business is carried on by a personal representative who is deemed to be a taxable person.

The following shall be treated as “supply of service”

(a) renting of immovable property;

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.

Explanation.- For the purposes of this clause-

(1) the expression “competent authority” means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:–

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(2) the expression “construction” includes additions, alterations, replacements or remodeling of any existing civil structure;

right;

(d)development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;

(e)agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

(f) works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(g) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; and

(h) 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.

The following shall be treated as supply of goods

(a) supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

In the Model GST Law tries to address lot of ambiguity we have today in the definition of what is supply of goods and services. Guidelines have been laid clearly for identifying what is supply of goods and what is supply of services and as it is a single law it also avoids the confusion of levy of taxes easily unlike the current regulations.

These examples are based on the model law and may change based on the actual law passed.

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

Posted on November 5, 2015November 6, 2016 by CMA Bhogavalli Mallikarjuna Gupta

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.

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.

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

How to get GSTIN

GSTIN can be obtained in the following manner

Directly applying from the GST Common Portal
Tax Return Preparer (TRP)
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

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.

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?

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?

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?

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?

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?

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.

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.

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