As per November 2016 Model GST Law, the taxpayer has to file for refund within 2 years in all cases except by United Nations Organization or any Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), Consulate or Embassy of foreign countries where the time limit is 6 months if they want to claim refund of tax paid by them on their inward supplies.
Differences between June 2016 MGL and revised MGL Law, November 2016
The Model GST was released in June 2016 to the public for their review and also make the industry plan for the rollout of GST. Basis the MGL published in June, the trade and industry and professionals have taken a very critical view of the same and submitted the feedback to the Government. Basis of the feedback, the suggestions have been incorporated in the Model GST Law and released to the public in November 2016 as Revised MGL.
This article gives a glimpse of the changes announced in the June MGL and Revised MGL published in November 2016.
GST Tip – 96
In table 14 of the GSTR – 1 report, starting number and ending number of each series of tax invoice has to be shown along with the net number of tax invoices issued and number of tax invoices canceled. Though the model GST Law or Draft invoice rules have no provision for cancellation of tax invoice, GSTR – 1 has provision to report the same.
GST Tip – 75
TDS_GST deducted by the deductor, the deductee can utilize the same for payment of out liability of GST or can apply for the refund as per section 48 of the Revised Model GST Law. The deductor can also apply for the refund under section 48 of the Revised Model GST Law.
GST Tip – 70
The threshold limit for applicability of deduction of tax at source is reduced from Rs 10 Lacs to Rs 5 Lacs in the Revised Model GST Law released in November 2016.
GST Tip – 68
Maximum Tax Levy under the composition levy has increased from one percent to two and half percent in the revised Model GST Law released in November 2016.
GST Tip – 67
A Taxpayer can obtain registration under Composition Levy if the turnover is less than Rs 50 Lacs and desires not maintain all records as per GST but pay a flat rate of tax at the end of the period. Under this levy, the taxpayer cannot take input tax credit or issue a tax invoice.
GST Tip – 66
Composite Supply as per MGL is, is a supply made by a taxable person having more than on supply of goods or services or in any combination. Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply.
Demystifying Tax Deduction at Source under the Model GST Law
In the current tax regime under VAT we have Tax Deducted at Source, and the same is being continued under GST also. Section 37 of the Model GST Law talks about the Tax Deduction at Source. From the Model GST Law, it is clear that it is not applicable for all transaction and to be recovered by all tax payers.
The tax has to be deducted by a specific set of persons as given in the sub-section 1 of section 37 of the Model GST Law. The list of persons who have to deduct tax will be decided by the State or the Central Government. The list of person as per Model GST Law
(a) a department or establishment of the Central or State Government, or
(b) Local authority, or
(c) Governmental agencies, or
(d) such persons or category of persons as may be notified, by the Central or a State Government on the recommendations of the Council,
Now we need to see who all will be included in the last point. It looks like the government wants to deduct tax on contracts gives for execution of roads, dams, power plants etc. This is to ensure that the contractor pays tax on the income and does not escape from the tax net, thereby minimizing revenue leakage.
The tax has to be deducted only in case if the supply of goods or service exceeds Rs 10 Lacs on the list of goods / services notified by the GST Council. The tax base for deduction of tax for TDS under GST is excluding the taxes mentioned on the invoice, this is something different to the valuation for determination of taxes under Section 15. The rate of tax to be deducted is 1%. This is surprising to note that the tax rate has been prescribed in the Act. We need to wait for the final GST Bill and see if the same will be included in the Act or will be announced through notification. If the rate is mentioned in the Act, the Act has to be amended every time government wants to change the tax rate.
The tax so deducted has to be deposited by the deductor by 10th of next month based on the format and other information to be reported. This will be made available only once the GST Council if formed.
The deductor has to issue a certificate to the deductee, the contractor from whom the tax is deducted with the details like the amount of contract, the rate of tax deducted, the amount of tax deducted and the amount of tax deposited by the deductor.
The deductor has to issue a certificate within 5 days from the date on which the amount is credited, a late fee of Rs 100 will be levied per day for delay in issue of a certificate. The amount of late fee will not exceed Rs 5000.
The deductee can take the credit of the tax based on GSTR – 2 filed by the Deductor under Section 27, sub-section 5 of the Model GST Law. The amount will be credited to the electronic cash ledger of the deductee and he can utilize the same for payment of GST taxes.
In case if the deductor fails to deposit the tax to the respective government, he is liable to pay interest on the defaulted amount as per provisions of Section 36 of the Model GST Law.
The deductor can claim for refund as per Section 38 of the Model GST Law provided that the amount is not credited to the electronic cash ledger of the deductee.
The person who has to deduct tax has to obtain registration number by filing of Form GST REG – 07.
GSTR – 7 has to be filed by the deductor on monthly basis using the services of GSP or directly on GSTN servers.
GSTR – 7A is the deduction certificate to be issued on monthly basis to the deductee.
From the provision of this section, it is clear that the government does not want to lose any tax revenue from the small contractors also. One silver lining is that, unlike in tax collected at source there is no matching of records to avail the credit. If the contractor wants to avail in the credit, then he has to be registered with GST. In a way the government is ensuring that there is no revenue leakage from any transactions at any given point of time.
Demystifying Job Work Under Model GST Law
In normal course of business, when a manufacturing unit is not able to meet it is supply on account of machine line balancing or specific operation being not capable of being performed in the factory or unexpected demand for the product in the market, normally outsources the same to external vendor for getting the processing completed at his premises. This process is called sub-contracting or job work in the tax parlance.
Sub-Section 62 of Section 2 defines Job work as “job work” means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression “job worker” shall be construed accordingly;
Goods and Service Tax is levied on the supply of goods and services and transfer of material from factory to the subcontractor’s premises amounts to supply. Till the Model GST Law was made available to the public domain there was a debate going on that is Job work or subcontracting is allowed under GST and to make the industry happy, the Model GST Law has provision for the Job-work under Section 43 A thereby providing lot of relief to the trade and industry. Supplies to job work are specifically excluded as supply in Schedule 1 of the Model GST Law. (for details on supply refer to the blog Demystifying Time of Supply of Goods under Model Law)
Though Job-work provisions are given in the section 43A, there is some change to the existing process of job-work under the Central Excise. As per the Model GST Law, the tax payer I,e the principal is required to obtain a special order from the GST Commissioner for permitting him to send the goods for job work under specific conditions for supply of material without payment of taxes for further processing by the job worker.
The modalities of the form to be used and the process of receiving and sending is not clear now and we need to wait for the relevant notifications once the GST Act is passed.
The principal can send the goods to the job worker from his registered premises and then after processing of the goods at the job workers place, the principal can do any of the following
- Request for return of goods to his original premises
- Or any of his registered premises
- Send the goods from the job workers place to further processing to another job worker
- Supply the goods directly from the job worker’s premises on payment of taxes within in India
- Export the goods directly from the job worker’s premises without payment of tax
In case if the goods are to be exported or sold in the domestic market, the job worker has to be registered as an additional place of business of the principal, which is not there in the existing provisions of the Central Excise. The same is not required if the job worker is already registered under GST as per provisions of Section 19. (Refer to blog on Demystifying Registration under Model GST Law)
The goods to be processed can be sent directly from the principals registered premises or ask his supplier to ship the goods directly to the job worker’s premises.
Section 43 A of the Model GST Law does not specify the days under which the goods have to be returned back to the principal’s place but section 150 and 151 under transitional provisions specifies the same as 6 months and Section 16A specifies if the goods are brought back within 180 days eligible for input tax credit. A clarification is required on the period as 180 days or 6 months, if this Is not clarified then there will be two-yard sticks on return of goods from the job worker
- For claiming input tax credit within 180 days
- For payment of duties if the goods are not brought back in 6 months.
Section 150 of the Model GST Law, describes the process for the inputs removed for job work and returned on or after the appointed day. The inputs sent on job work prior the appointed day (the date on which the GST is rolled out) within 6 months, then no taxes are to be paid. In case if the same are returned after 6 months, the jurisdictional commissioner can grant an additional period of 2 months if he is satisfied with the reasons for the delay. In case if such permission is not granted or being returned after a further extension of 2 months, taxes have to be paid under GST. The principal or the manufacturer has to pay the taxes.
The above process is applicable only if the principal or manufacturer maintains a proper record of the inputs lying in the premises of the job worker as on the appointed date in the format prescribed by the tax authorities.
Section 150 of the Model GST Law, describes the process for the semi-finished goods removed for job work and returned on or after the appointed day. The semi-finished goods sent on job work prior the appointed day (day on which the GST is rolled out) within 6 months, then no taxes are to be paid. In case if the same are returned after 6 months, the jurisdictional commissioner can grant an additional period of 2 months if he is satisfied with the reasons for the delay. In case if such permission is not granted or being returned after further extension of 2 months, taxes have to be paid under GST. The principal or the manufacturer has to pay the taxes.
The manufacturer or principal can ship the goods directly from the job worker’s premises to any other registered tax payer on payment of duties or export the same without payment of duties.
The above process is applicable only if the principal or manufacturer maintains a proper record of the semi-finished goods lying in the premises of the job worker as on the appointed date in the format prescribed by the tax authorities.
We need to have further information on the job work under GST
- The format of the letter to be sent the commissioner for requesting permission for job work.
- The format of the document under which the goods can be shipped without payment of taxes.
- The format of the document under which the goods can be sent directly from the supplier to job worker.
- Clarity on the time period under which the goods have to be returned back from job worker – 180 days or 6 months.
- The format for declaring the goods laying at the job worker as on appointed date.
- Applicability of Section 61 of the Model GST Law for the moment of goods from tax payers location to job workers location.
There are some changes that need to be adopted by the tax payers going forward under GST for job work.
- If the job worker is not a registered taxable person, then his address is also to be included in the place of business of the taxpayer in his registration application. This needs to be updated from time to time as the goods can be sent to different job workers based on the business requirements.
- Reverse charge will be applicable on the charges paid to the job worker if the job worker is not a registered tax payer.
- In case of goods not returned within 180 days from the job worker, before payment of duty proper care has to be taken to identify if the goods sent are before the rollout of GST, if yes, then 180 days should be considered from the rollout date and not from the actual date on which the goods are sent to the job worker.
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