Goods and GST Bill passed, Goods and Services Tax - GST

[Ganeshan Kalyani]

Dear All,

GST Bill is passed in Rajya Sabha on 03. 08.2016.

A panel under chief economic adviser Arvind Subramanian has recommended a revenue-neutral rate of 15-15.5%, with a standard rate of 17-18% be levied on most goods and all services.

But, there has been no agreement yet on rates of various goods and services, which remains a tricky issue. According to the Bill, passed in the Lok Sabha in May 2015, the rates were to be decided by a GST council headed by the central finance minister with state finance ministers as members.

Let us wait.

Thanks.

Posts / Replies

[Ganeshan Kalyani]

Annual Return: This return needs to be filed by 31st December of the next Financial Year. In this return, the taxpayer needs to furnish details of expenditure and details of income for the entire Financial Year.

[Ganeshan Kalyani]

GSTR-1 (Statement of Outward Supplies): File via GSTN/Easy upload tools provided by GSTN/GSPs. Periodical uploading allowed. Filed by 10th. Frozen after 10th.

GSTR-2 (Statement of Inward Supplies): Auto-populated from GSTR-1s filed by a Tax Payer’s Suppliers. Changes allowed between 10th and 15th. Filed by 15th.

What happens after 15th? – Tax Payer can add additional invoices. Supplier has the option to accept/reject additional invoices. Supplier’s GSTR-1 gets amended to that effect.

GSTR-3 (Monthly return): Auto-populated from GSTR-1 and GSTR-2. Filed by 20th.

[Ganeshan Kalyani]

Revision of Returns

The mechanism of filing revised returns for any correction of errors/ omissions has been done away with.The rectification of errors/ omissions is allowed in the subsequent returns.

However, no rectification is allowed after furnishing the return for the month of September following the end of the financial year to which, such details pertain, or furnishing of the relevant annual return, whichever is earlier.

[Ganeshan Kalyani]

Goods and Service Tax (GST) does not permit any revision of GST returns, which may create some challenges for taxpayers.

[Ganeshan Kalyani]

A taxable event under GST is supply of goods or services or both. GST will be payable on every supply of goods or services or both unless otherwise exempted. The rates at which GST is payable for individual goods or services or both is also separately notified Classification of supply (whether as goods or services, the category of goods and services) is essential to charge applicable rate of GST on the particular supply. The application of rates will pose no problem if the supply is of individual goods or services, which is clearly identifiable and the goods or services are subject to a particular rate of tax.

[Ganeshan Kalyani]

But not all supplies will be such simple and clearly identifiable supplies. Some of the supplies will be a combination of goods or combination of services or combination of goods and services both. Each individual component in a given supply may attract different rate of tax. The rate of tax to be levied on such supplies may pose a problem in respect of classification of such supplies. It is for this reason, that the GST Law identifies composite supplies and mixed supplies and provides certainty in respect of tax treatment under GST for such supplies.

[Ganeshan Kalyani]

Under GST, a composite supply would mean a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply:

Illustration: 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 a principal supply.

[Ganeshan Kalyani]

The rule is – ‘If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’

[Ganeshan Kalyani]

Whether the services are bundled in the ordinary course of business, would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below :

• The perception of the consumer or the service receiver – If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business.

• Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.

• The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business

[Ganeshan Kalyani]

• Other illustrative indicators, not determinative but indicative of bundling of servicesin the ordinary course of business are:

-There is a single price or the customer pays the same amount, no matter how much package they actually receive or use

– The elements are normally advertised as a package

– The different elements are not available separately

– The different elements are integral to one overall supply. If one or more is removed, the nature of the supply would be affected

[Ganeshan Kalyani]

No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above.

[Ganeshan Kalyani]

Under GST, a mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply:

Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single, price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

[Ganeshan Kalyani]

In order to identify if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply.

The following illustration given in the Education Guide of CBEC referred above can be a pointer towards a mixed supply of services: A house is given on rent one floor of which is to be used as residence and the other for housing a printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case, renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property.

[Ganeshan Kalyani]

The tax liability on a composite or a mixed supply shall be determined in the following manner:

(a) A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply

(b) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax

[Ganeshan Kalyani]

Assessment in GST is mainly focused on self-assessment by the taxpayers themselves. Every taxpayer is required to self-assess the taxes payable and furnish a return for each tax period i.e. the period for which return is required to be filed. The compliance verification is done by the department through scrutiny of returns,
audit and/or investigation. Thus the compliance verification is to be done through documentary checks rather than physical controls. This requires certain obligations to be cast on the taxpayer for keeping and maintaining accounts and records.

[Ganeshan Kalyani]

Key points that are significant from the perspective of maintenance of accounts and records are:

1. Section 35 of the CGST Act and “Accounts and Records” Rules (hereinafter referred to as rules) provide that every registered person shall keep and maintain all records at his principal place of business. It has cast the responsibility on the owner or operator of warehouse or godown or any other place used for storage of goods and on every transporter to maintain specified records.

The section also empowers the Commissioner to notify a class of taxable persons to maintain additional accounts or documents for specified purpose or to maintain accounts in other prescribed manner.

It also provides that every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant.

[Ganeshan Kalyani]

2. Every registered person is required to maintain true and correct account of following:
(a) production or manufacture of goods

(b) inward and outward supply of goods or services or both

(c) stock of goods

(d) input tax credit availed

(e) output tax payable and paid and

(f) such other particulars as may be prescribed

(g) goods or services imported or exported or

(h) supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers, refund vouchers and e-way bills

The aforementioned list is on a macro level and what needs to be stored on ground level as part of the list is given below:

(a) accounts of stock in respect of goods received and supplied; and such account shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and balance of stock including raw materials, finished goods, scrap and wastage thereof

(b) a separate account of advances received, paid and adjustments made thereto

(c) an account containing the details of tax payable, tax collected and paid, input tax, input tax credit
claimed together with a register of tax invoice, credit note, debit note, delivery challan issued or received during any tax period

(d) names and complete addresses of suppliers from whom goods or services chargeable to tax under the Act, have been received

(e) names and complete addresses of the persons to whom supplies have been made

(f) the complete addresses of the premises where the goods are stored including goods stored during transit along with the particulars of the stock stored therein

(g) monthly production accounts showing the quantitative details of raw materials or services used in the manufacture and quantitative details of the goods so manufactured including the waste and by products thereof

(h) accounts showing the quantitative details of goods used in the provision of services, details of input services utilised and the services supplied

(i) separate accounts for works contract showing:
• the names and addresses of the persons on whose behalf the works contract is executed
• description, value and quantity (wherever applicable) of goods or services received for the execution of works contract
• description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract
• the details of payment received in respect of each works contract and
• the names and addresses of suppliers from whom he has received goods or services

[Ganeshan Kalyani]

3. In case more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business. If records can be maintained electronically and access to such records is at each place of business, no requirement to maintain hard copy records at each place of business.

[Ganeshan Kalyani]

4. If records are maintained electronically, following requirements have been prescribed:

(a) data so stored shall be authenticated by way of digital signature

(b) proper back-up of records

(c) produce, on demand, the relevant records or documents, duly authenticated, in hard copy or in any electronically readable format

[Ganeshan Kalyani]

5. Any entry in registers, accounts and documents shall not be erased, effaced or overwritten and all incorrect entries, other than those of clerical nature, shall be scored out under attestation and thereafter the correct entry shall be recorded and where the registers and other documents are maintained electronically, a log of every entry edited or deleted shall be maintained.

Further each volume of books of account maintained manually by the registered person shall be serially numbered

[Ganeshan Kalyani]

6. Period for preservation of accounts: All accounts maintained together with all invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply shall be preserved for 6 years from the due date of furnishing of annual return for the year pertaining to such accounts and records.

[Ganeshan Kalyani]

7. Records to be maintained by owner or operator of godown or warehouse and transporters: The transporters, owners or operators of godowns, if not already registered under the GST Act(s), shall submit the details regarding their business electronically on the Common Portal in FORM GST ENR-01. A unique enrolment number shall be generated and communicated to them. A person in any other State or Union territory shall be deemed to be enrolled in the State or Union Territory.

[Ganeshan Kalyani]

The GST Act defines an Agent as a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.

[Ganeshan Kalyani]

So, who is a pure agent and why is a pure agent relevant under GST? Broadly speaking, a pure agent is one who while making a supplyto the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply. While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is that of a pure agent.

[Ganeshan Kalyani]

Let’s understand the concept by taking an example:

A is an importer and B is a Custom Broker. A approaches B for customs clearance work in respect of an import consignment.The clearance of import consignment and delivery of the consignment to A would also require taking service of a transporter.So A, also authorises B, to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actuals. In the given illustration, B is providing Customs Brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form part of value of Customs Broker service provided by B to A.This, in sum and substance is the relevance of the pure agent concept in GST.