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.

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[Ganeshan Kalyani]

RELEVANCE OF PURE AGENT UNDER GST

The concept is borrowed from the erstwhile Service Tax Determination of Value Rules, 2006 and carried forward under GST. Under the GST Valuation Rules 2017, a pure agent is given the following meanings.

A “pure agent” means a person who: (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply

[Ganeshan Kalyani]

(c) does not use for his own interest such goods or services so procured

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for the supply he provides on his own account

The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract.In the illustration of Importer and Customs Broker given above, assuming that the contract was for clearance of goods and delivery to the Importer at the price agreed upon in the contract.In such case, the Customs Broker would be using the transport service for his own interest (as the agreement requires him to deliver the goods at the importers place) and thus would not be considered as a pure agent for the services of transport procured.

[Ganeshan Kalyani]

Another important fact is that, the person who provides any service as a pure agent receives only the actual amount for the services provided. Coming back to our example of Importer and Customs Broker, the agreement provides reimbursement of transport services utilized at actual. In this case, let’s say the value of transport service was ₹ 10,000/-.If the Customs Broker charges any amount more than ₹ 10,000/-, then he will not be considered as a pure agent for the services of transport and the value of transport service will be included in the value of his Customs Broker service.

EXCLUSION FROM VALUE

Expenditure incurred as pure agent becomes relevant, when it comes to determining the value of a supply for levy of GST. The preceding para explains who will be considered as a pure agent.The valuation rules provide that expenditure incurred as pure agent, will be excluded from the value of supply, and thus also from aggregate turnover. However, such exclusion of expenditure incurred as pure agent is possible only and only if all the conditions required to be considered as a pure agent and further conditions stipulated in the rules are satisfied by the supplier in each case.

The supplier would have to satisfy the following conditions (in addition to the condition required to be satisfied to be considered as a pure agent)for exclusion from value: (i) The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party on authorization by such recipient (ii) The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service (iii) The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

The following illustration will make the concept clearer:

• Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B

• Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies

• The fees charged by the Registrar of the Companies registration and approval of the name are compulsorily levied on B

• A is merely acting as a pure agent in the payment of those fees.

• Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

CONCLUSION

A pure agent concept is an important one for businesses as it has direct implications on the value of taxable service. It has direct bearing on the amount of GST charged on a particular supply. It also has bearing on the aggregate turnover of the supplier and therefore on calculating the threshold limit for registration. Whenever the intention is to act as a pure agent, care should be taken to ensure that the conditions specified for such pure agents and further conditions given in the valuation rules are also met so that only the real value of the service provided is subjected to GST.

[Ganeshan Kalyani]

The concept is borrowed from the erstwhile Service Tax Determination of Value Rules, 2006 and carried forward under GST. Under the GST Valuation Rules 2017, a pure agent is given the following meanings.

A “pure agent” means a person who: (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both

neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply

(c) does not use for his own interest such goods or services so procured

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for the supply he provides on his own account

The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract.In the illustration of Importer and Customs Broker given above, assuming that the contract was for clearance of goods and delivery to the Importer at the price agreed upon in the contract.In such case, the Customs Broker would be using the transport service for his own interest (as the agreement requires him to deliver the goods at the importers place) and thus would not be considered as a pure agent for the services of transport procured.

[Ganeshan Kalyani]

It has been reported in a certain section of media that some unscrupulous elements posing as GST officers have tried to fleece the shopkeepers and customers in the name of GST. It is hereby clarified by the Office of the Chief Commissioner of GST (Delhi Zone) that the Department only wants to facilitate the shopkeepers and traders during the transition period.

No officer of the Department is authorized to visit the premises of the traders and shopkeepers without authorization. In case of any difficulty, complain at Phone no. 011-23370115, Central Revenue Building, I. P. Estate, New Delhi.

[Ganeshan Kalyani]

The Comptroller and Auditor General (CAG) has finalised an “End-to-End IT solution’’ to audit the Goods and Services Tax (GST). The proposal envisages a pilot programme on the GST audit which will be ready by October this year and, after two beta versions, a final stage of near real-time peer review, and a digital audit report by March 2019. CAG Shashi Kant Sharma told The Indian Express that with GST becoming a reality, they too are in a position to come out with an audit on a digital platform within one working financial year.

[Ganeshan Kalyani]

The GST digital audit, according to CAG officials, will create many firsts. It aims to leave a zero-paper trail and go completely paperless from day one with key features of the platform being a digitally-filed audit and real-time monitoring.

“Our idea is to create a data-driven platform for auditing the GST which is independent of time, place and person. Our State Auditor Generals are already interacting with state governments with requirements for the digital GST audit,” he said. Sharma will be in Bangalore next month to inaugurate the nodal centre of the CAG for the GST auditing process.

[Ganeshan Kalyani]

A data warehouse will be created by a security-cleared CAG team with data being collected from sources such as the GSTN, the Central Board of Excise and Customs and commercial taxes departments of all states and UTs.

[Ganeshan Kalyani]

Data will also be collected by the CAG from “third parties” such as the Income Tax department, urban municipalities and corporations, e-commerce, Airport Authority of India, Medical Council of India, agricultural marketing committees and other regulatory bodies.

[Ganeshan Kalyani]

According to the CAG proposal, information relating to audit observations raised in field inspection reports and, subsequently, draft paras prepared by GST audit officers will also be stored in the data warehouse and will be accessible to stakeholders after security clearance.

[Ganeshan Kalyani]

The CAG proposes to use Aadhaar-based OTP and finger-print authentication for entry into the portal by any user, entry by officers of the Indian Audit and Accounts Department (IAAD) working on the GST audit as well as for digital signatures of documents.

[Ganeshan Kalyani]

E-way bill provision under GST is not made effective from 01.07.2017 as e-way bill system under GST is not yet ready. However, till 30.09.2017, a provision for e-way bill has been notified by Order vide G.O.MS No. 309 dated 24.07.2017.

1. Order notifying e-way bill provision to be effective till 30.09.2017.
2. e-Waybill is required for the movement of goods which are not exempted under the Act for all purposes i.e., coming into the State or going out of the State or for the movement within the State,
3. it is required when the value of goods excluding tax exceeds Fifty Thousand Rupees.

This notification will come into force with immediate effect and will be in operation till 30-09-2017.

[Ganeshan Kalyani]

GST full form is Goods and Services Tax . GST applies throughout India and is indirect tax. Moreover from now onward GST replaces many taxes. Generally State and Central Governments levy taxes. But after many meetings, Finance Minister of India and Indian Government introduced GST on July 1^st 2017. Government of India introduced Goods and Services Tax as The Constitution Act 2017.

[Ganeshan Kalyani]

There are total 5 GST tax rates. And these are 0%, 5%, 12%, 18% and 28%. Even there is special tax rate of 0. 25% on semi precious stones and rough precious stones. While there is 3% tax on gold. Luxury cars, aerated drinks and tobacco products have additional cess. This cess is of 15%.

[Ganeshan Kalyani]

SGST full form is State GST or State Goods and Services Tax. Whereas CGST full form is Central GST or Central Goods and Services Tax. It means that Central Government and State Government levy CGST and SGST on transactions. It is only when transactions are in one state.

[Ganeshan Kalyani]

IGST full form is Integrated Goods and Services Tax or Integrated GST. Additionally Central Government levies IGST on inter state transactions and imported goods and / or services.

[Ganeshan Kalyani]

India sits at number 35 on the World Bank Logistics Index, which takes into account multiple variables such as customs, infrastructure, international shipments, logistics quality and competence, tracking and tracing, and timeliness.

[Ganeshan Kalyani]

As Prime Minister Narendra Modi pushes for better standards in ease of doing business, bolstering the economy by way of the ‘Make-in-India’ initiative and looking to bring in increasing amount of foreign investment, it is important for us to analyse India’s logistics backbone accordingly.

[Ganeshan Kalyani]

While GST is expected to boost India’s ease of doing business rankings, it is still unclear if the big bang tax reform will yield similar results for the logistics sector in general and the air express industry in particular.

[Ganeshan Kalyani]

The ₹ 20,350 crore Indian air express industry – which creates six indirect jobs for one direct job and handles roughly 30 million shipments on a daily business – has voiced concerns on the ‘e-Way bill’, which comes as part of the GST reform. The big boys of the express delivery services (EDS) industry, including DHL, Blue Dart and FedEx, believe that the very construct of e-way bill is contrary to the core competency of the express industry, i.e. time-bound guaranteed delivery of shipments.

[Ganeshan Kalyani]

As per the CBEC guidelines, any movement of goods exceeding the value of ₹ 50,000 cannot be made by a registered entity without an e-way bill. This bill can be generated at the GSTN portal or through an SMS. However, with the extent of information solicited by the e-way bill, the industry sees existential challenges in complying with the process requirements.

[Ganeshan Kalyani]

Firstly, the bill aims to capture certain information such as vehicle registration number and driver details from express/courier and multi-modal transport operators prior to the movement of goods of consignment.

In the existing business models, multiple individual consignments are collected by the EDS operator (delivery boys on foot, e rickshaw, bicycle in addition to vans or motor bikes). Moreover, when these individual shipments are received at a hub, they are sorted and allotted vehicles depending on cost and time optimization algorithms. Not only is it impossible to give registered vehicle numbers for delivery boys on foot, allotting transport vehicles well before the shipments reach the sorting centre would hamper efficiency, hurt cost and impact delivery commitments.

[Ganeshan Kalyani]

Secondly, a new bill is required every time a shipment moves from one vehicle to another. In the express industry, which is dominated by real time decisions and cost optimisation, pronouncing the exact path and mapping the same to specific vehicle numbers will be a formidable operational challenge.

[Ganeshan Kalyani]

All consignments of value less than ₹ 50,000 are exempted from an invoice at the time of shipment. However, the express delivery service provider still needs to submit details related to the particular shipment on the common portal, before the shipment is moved. This creates an additional liability for the delivery provider, since the value is declared by the customer – the delivery provider is merely an agent to move goods from one location to another. It would be unfair to hold the delivery provider responsible for goods if the value is not the same as that declared by the sender.

[Ganeshan Kalyani]

It is imperative for us to appreciate the distinct way that India’s EDS model operates. Considering that its services are extremely sensitive to time and accuracy, any lag in the delivery process on account of compliance would be insensitive to the industry as a whole. It is important to take cognisance of the role that the air express industry has played in facilitating India’s trade competitveness.