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GST Transitional Challenges Ongoing service contracts

Goods and Service Tax - GST - By: - ashish chaudhary - Dated:- 2-9-2015 - India is on behest of implementing Goods and Service Tax (GST) which is said to be biggest tax reform since Independence. One important aspect under GST would be to deal with transitional provisions especially in relation to ongoing contracts which have been entered into pre GST but not completed at the time of GST introduction. Present discussion is confined to transitional challenges on the contracts entered into by serv .....

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hen the additional cost of tax could be a subject matter of demand from the receiver of goods or services. Here it may be kept in mind that the buyer may be eligible for the credit unless he is a final consumer. 1. All inclusive contracts with government: Government generally enter into all inclusive contracts where the price quoted is inclusive of all taxes. The service provider may or may not be required to disclose the value of tax charged separately on the invoices. It could be possible that .....

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he very survival of the entity. Apart from this, there could be exemption under existing service tax law on services provided to government say construction of road, canal, dam or other irrigation works etc. These contracts are of significant value and include the value of both material as well as services. It is very unlikely that theexemption will be continued in the GST regime on these type of contracts and if charged to standard rate of tax say 22%, you can think of what would happen to serv .....

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service, raising of invoice and receipt of advance), invoice must be issued before GST becoming effective to the extent of work completed by then. Seamless credit is expected to be allowed under GST across goods and services. Proper documentary evidence must be maintained indicating all taxes (excise, VAT, SAD etc.) for the material lying in the stock pre GST and to be used after GST. This could enable the service provider to take the credit of taxes paid under current regime. Stock declaration .....

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to be incorporated in the service to avoid levy of additional 1% tax. Proper reconciliation must be prepared for revenue arising from these contracts booked in profit & Loss A/c viz a viz shown inST-3 returns. 2. Contract for services presently exempted/abated/covered by negative list: Service provider may presently be engaged in providing services which are covered by exemption notification or by negative list. Most of the exemptions presently granted are expected to be phased out in the GS .....

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factors for such service providers: The contract must explicitly spell out that tax would be charged extra, as applicable including GST. Invoice should be raised and payment received from the customer for services to be provided in post GST regime, so that no tax is applicable to that extent as 2 out of 3 events are fulfilled beforehand. Inventory of material/capital goods, their location, taxes paid thereon must be documented and declared to claim the credit of taxes paid on purchase as the ta .....

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s could directly affect the service exporters as the service receiver located abroad may not be concerned with the changes of tax structure in India and may straightforward deny for reimbursing additional tax cost especially where tax clause is not mentioned in the contract. The exporter of service could take following actions to safeguard against possible consequences of imposition of tax: All existing and running contracts must be relooked to examine the tax clause. If not mentioned, modify ex .....

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ed to raise invoices for all completed services before GST becoming effective so that taxability of the same is not in doubt especially where there is change in place of supply rules. 4. Works Contract: The taxation of works contract under current taxation regime is most complicated as it may involve the element of excise, VAT/CST and service tax on different components of single transaction. The tax is levied under current regime on different taxable event i.e. manufacture, sale and provision o .....

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itional tax @1% during initial 2 years period etc. Internationally accepted practice in few countries is to treat all composite supply to be considered as supply of service notwithstanding it involves material portion also.This obviate need to segregate the consideration towards goods and services. It is not certain as of now what would be supply principle of works contract, yet following aspects could assist a service provider engaged in ongoing works contract during transition to GST. Specify .....

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