Integrated Goods and Services Tax Act

The introduction of Goods and Services Tax (GST) is a significant reform in the field of indirect taxes in our country. Multiple taxes levied and collected by the Centre and states would be replaced by one tax called Goods and Services Tax (GST). GST is a multi-stage value added tax on consumption of goods or services or both.

  1. A “dual GST” model has been adopted in view of the federal structure of our country. Centre and States will simultaneously levy GST on every supply of goods or services or both which takes place within a State or Union territory. Thus, there shall be two components of GST as under: –
  2. Central tax (CGST):

(levied & collected under the authority of CGST Act, 2017 passed by the Parliament)

  • State tax (SGST)

(levied & collected under the authority of SGST Act, 2017 passed by respective State)

Why the third tax in the name of IGST?

  1. Before discussing the IGST Model and its features it is important to understand how inter-state trade or commerce is being regulated in the present indirect tax system. It is significant to note that presently the Central Sales Tax Act, 1956 regulates the inter-state trade or commerce (hereinafter referred to as “CST”) the authority for which is constitutionally derived from Article 269 of the Constitution. Further as per article 286 of the Constitution of India, no State can levy sales tax on any sales or purchase of goods that takes place outside the State or in the course of the import of the goods into, or export of the goods out of the territory of India Only Parliament can levy tax on such transaction. The Central Sales Tax Act was enacted in 1956 to formulate principles for determining when a sale or purchase of goods takes place in the course of interstate trade or commerce. The Act also provides for the levy and collection of taxes on sale of goods in the course of interstate trade

  1. The CST suffers from following shortcomings:
  2. CST is collected and retained by the origin state, which is an aberration. Any indirect tax, by defini­tion is a consumption tax, the incidence of which is borne by the consumer. Logically, the tax should ac­crue to the destination state having jurisdiction over such consumer.
  3. Input Tax Credit (ITC) of CST is not allowed to the buyer which results in cascading of tax (tax on tax) in the supply chain.
  • Various accountal forms are required to be filed in CST viz., C Form, El, E2, F, I, J Forms etc. which adds to the compliance cost of the business and im­pedes the free flow of trade.
  1. Another negative feature of CST is the opportunity it provides for “arbitrage” because of the huge differ­ence between tax rates under VAT and CST being levied on intra-State sales and inter-State sales re­spectively
  2. The IGST model would remove all these deficiencies. IGST is a mechanism to monitor the inter-state trade of Goods and services and further to ensure that the SGST component accrues to the consumer It would maintain the integrity of Input Tax Credit (hereinafter referred to as “ITC”) chain in inter-state supplies. The IGST rate would broadly be equal to CGST rate plus SGST rate. IGST would be levied by the Central Government on all inter-State transactions of taxable goods or services.

IGST rate= CGST rate + SGST rate ( more or less)

  1. Cross-utilization of credit requires transfer of funds between respective accounts. The utilization of credit of CGST & SGST for payment of IGST by “B” would require transfer of funds to IGST accounts. Similarly, the utilization of IGST credit for payment of CGST & SGST by “C” would necessitate transfer of funds from IGST account. As a result, CGST account and SGST (Rajasthan) would have Rs 1300/- each, whereas, there will not be any amount left in IGST and SGST (Maharashtra) after transfer of ITC.
  2. Prescribed order of utilization of IGST/CGST/ SGST credit:

The IGST payment can be done by utilizing ITC. The amount of ITC on account of IGST is allowed to be utilized towards payment of IGST, CGST and SGST in that order.

  1. Nature of Supply

 It is very important to determine the nature of supply –whether it is inter-state or intra state, as the kind of tax to be paid (IGST or CGST+SGST) depends on that.

  1. Inter- state Supply:

Subject to place of supply provisions, where the location of the supplier and the place of supply are in—

  1. two different States;
  2. two different Union territories; or
  3. a State and a Union territory,

Such supplies shall be treated as a supply of goods or services in the course of inter-State trade or commerce.

Any supply of goods or services in the taxable territory, not being an intra-State supply shall be deemed to be a supply of goods or services in the course of inter-State trade or commerce. Supplies to or by SEZ are defined as inter-State supply. Further supply of goods imported into territory of India till they cross the customs frontiers of India or supply of services imported into the territory of India shall be treated as supplies in the course of inter-State trade or commerce. Even supplies to international tourists are to be treated as inter-state supplies.

  1. Intra-State supply:

It has been defined as any supply where the location of the supplier and the place of supply are in the same State or Union territory.

Intra state supply Interstate supply

 

 

>

Supply of goods within the state or union territory.

 

Supply of services within the state or union territory

> Supply of goods from one state or union territory to other state or union territory.

 

> Supply of service from one state or union territory to other state or union territory.

 

> Import of goods till they cross customs frontier

 

> Import of service.

 

> Export of goods or service. Supply of goods/services to/by SEZ.

 

> Supplies to international tour­ists

 

> Any other supply in the tax­able territory which is not intra state supply

 

Thus, the nature of the supply depends on the location of the supplier and the place of supply. Both these terms have been defined in the IGST Act.

  1. Location of Supplier broadly is the registered place of busi­ness or the fixed establishment of the supplier from where the supply is made. Sometime, a service provider has to go to client location for providing service. However, such place would not be considered as the location of supplier. It has to be either regular place of business or fixed establishment which is having sufficient degree of permanence and suit­able structure in terms of human and technical resources.

  1. Place of supply

9.1    Place of supply provisions have been framed for goods & services keeping in mind the destination/consumption prin­ciple. In other words, place of supply is based on the place of consumption of goods or services. As goods are tangi­ble, the determination of their place of supply based on the consumption principle is not difficult. Generally the place of delivery of goods becomes the place of supply. However, the services being intangible in nature, it is not easy to de­termine the exact place where services are acquired, enjoyed and consumed. In respect of certain categories of services, the place of supply is determined with reference to a proxy.

9.2A Distinction has been made between B2B (Business to Business) & B2C(Business to Consumer) transactions as B2B transactions are wash transactions as ITC is availed by such registered person (recipient) and no real revenue accrues to the Govt.

9.3   Separate provisions for supply of goods and services have been made for determination of their place of supply. Sep­arate provisions for determination of place of supply in re­spect of domestic supplies and cross border supplies have been framed.

  1. Place of Supply of Goods other than import and export [Section- 10]

S.No. Nature of supply Place of Supply
1 Where the supply involves movement
of goods, whether by the supplier or the recipient or by any other person.
Location of the goods at the time at which the movement of goods terminates for delivery to the recipient.
2 Where the goods are delivered to recipient or any person on the direction of third person by      way of transfer of title or otherwise, it shall be deemed      that     third person                 has     received
the goods
The principal place of business of such person
3 where there is no movement of goods either by supplier or recipient Location of such goods at the time of delivery to recipient
4 where goods are assembled or installed at site The place where the goods are assembled or installed

 

5 where the goods are The place where such
supplied on board goods are taken on
a conveyance, like vessel, aircraft, train or motor vehicle board the conveyance
6 Where the place It shall be determined
of supply of goods in such manner as may
cannot be determined in terms of sub-

section (2), (3), (4) and (5)

 

 

 

be prescribed

  1. Place of supply of goods in case of import &Export [ Section -11]

S.No. Nature of supply of goods Place of Supply
1 Import location of importer
2 Export location outside India

  1. Place of supply of services in case of domestic supplies: (section12)

(Where the location of supplier of services and the location of the recipient of services is in India.)

Place of supply is determined with reference to a proxy. Rest of services are governed by a default pro­vision.

S.No Nature of service Place of supply
1 Immovable prop- erty related services including hotel ac- commodation, Location at which the im­movable property or boat or vessel is located or in­tended to be located.

If located outside India: Location of the recipient.

2 Restaurant and ca-
tering services, per-

sonal                           grooming,

fitness,                             beauty

treatment,                         health

service,

Location where the ser­vices are actually per­formed.
3 Training and perfor- mance appraisal , B2B :                           Location of such

registered                        person;

B2C:                                 Location where

the services               are             actually
performed.

4 Admission                 to          an

event or amusement park

Place where the event is actually held or where the park or such other place is located.

5 Organization of an event. B2B :                                           Location of such

registered person;

B2C:                                                           Location where the

event is actually held.

If        event is held                         outside

India :Location of the re­cipient

6 Transportation                         of

goods                            including

mails

B2B :                                           Location of such

registered person;

B2C : Location at which such goods are hand­ed over for their transpor­tation

7 Passenger transpor- tation. B2B :                                           Location of such

registered person;

B2C :                        Place where the

passenger embarks on

the conveyance for a con­tinuous journey

8 Services on board a conveyance Location of the first sched­uled point of departure of that conveyance for the journey.
9 Telecommunication Services            involving                  fixed
services. line,              circuits,                   dish                  etc.,

place of supply is location
of such fixed equipment.

In case of mobile/ inter-net post-paid services, it is location of billing address of the recipient. In case of sale of pre-paid voucher, place of supply is place of sale of such vouchers. In other cases it is address of the recipient in records.
10 Banking and other Location of the recipient
financial services, of services on the records of the supplier.
Location of the supplier of services if the location of the recipient of services is not available
11 Insurance services B2B :                                          Location of such

registered person;

B2C :                                             Location of the

recipient of                                services

on the records of the sup­plier

12 Advertisement ser­vices to the Govern­ment The place of supply shall be taken as located in each of such States

Proportionate                                value in

case of multiple state

  1. For the rest of the services other than those speci­fied above, a default provision has been prescribed as under.
Default Rule for the Services other than twelve Speci-
fied Services
S.No. Description of
supply
Place of supply
1 B2B Location of such registered person
2 B2C (i)Location of the recipient where the ad­dress on record exists, and

(ii) the location of the supplier of services in other cases.

  1. Place of supply of services in case of cross-border supplies 🙁 Section 13)

(Where the location of the supplier of services or the location of the recipient of services is outside India)

  1. In respect of following category of services, the place
    of supply is determined with reference to a proxy.

Rest of the services are governed by a default pro­vision.

S.No Nature of service Place of supply
1 Services supplied in re- spect of goods that are required to be made physically available

from a remote location by way of electronic means,

(Not Applicable in case of goods that are tem­porarily imported into India for repairs and ex­ported.)

the location where the services are actually performed,

the           location                    where

goods are situated

2 services supplied to an individual which require the physical presence of the receiver the location where the services are actually performed.
3 Immovable property re- lated services including hotel accommodation. Location at which the immovable property is located.
4 Admission to or organi- sation of an event. The place where the event is actually held.
Services on board a con- veyance. The            first                   scheduled

point of departure of that conveyance for the journey.

10 Online information  and         database access or retrieval services” The location of recipi­ent of service.

ii             For the rest of the services other than those speci-

fied above, a default provision has been prescribed as under.

Default Rule for the cross border supply of Services other than nine         Specified Services
S.No. Description of supply Place of supply
1 Any Location of the Recipient of Service

If not available in the ordinary course of business: The location of the supplier of service.

  1. Supplies in territorial waters:

Where the location of the supplier is in the territorial waters, the location of such supplier; or where the place of supply is in the territorial waters, the place of supply is be deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

  1. Export /Import of services: a supply would be treated as

Import or export if certain conditions are satisfied. These conditions are as under: –

Export of

Services

Import of Services
means the supply of any service means the supply of
where any service, where
(a) the supplier of
(a)         the supplier of service is located service is located
in India, outside India,
(b)        the recipient of service is locat-
ed outside India,
(b the recipient
(c) the place of supply of service is of service is locat-
outside India, ed in India, and
(d) the payment for such service
has been received by the supplier
of service in convertible foreign (c)                the place of
exchange, and supply of service is in India;
(e) the supplier of service and
recipient of service are not merely
establishments of a distinct person
in accordance with explanation 1 of
section 8;

13 Zero rated supply: Exports and supplies to SEZ are
considered as ‘zero rated supply’ on which no tax is payable.

However, ITC is allowed subject to such conditions, safeguards and procedure as may be prescribed, refund in respect of such supplies may be claimed by following either of these options:

  1. supply made without payment of IGST under Bond and claim refund of unutilised ITC or
  2. supply made on payment of IGST and claim refund of the same.
  3. Refund of integrated tax paid on supply of goods to tourist leaving India:

Section 15 of the IGST Act provides for refund of IGST paid to an international tourist leaving India on goods being taken outside India subject to such conditions and safeguards as may be prescribed. An international tourist has been defined as a non-resident of India who enters India for a stay of less than 6 months. IGST would be charged on such supplies as the same is in the course of export.

This Section was not made applicable from 1″ July, 2017 and will be notified at a later date once the ecosystem for the same is ready.

Returns in GST

Returns in GST

The basic features of the return mechanism in GST includes electronic filing of returns, uploading of invoice level information, auto-population of information relating to input tax credit from returns of supplier to that of recipient, invoice level information matching and auto-reversal of input tax credit in case of mismatch. The returns mechanism is designed to assist the taxpayer to file returns and avail ITC.

Under GST, a regular taxpayer needs to furnish monthly returns and one annual return. There are separate returns for a taxpayer registered under the composition scheme, non-resident taxpayer, taxpayer registered as an Input Service Distributor, a person liable to deduct or collect the tax (TDS/TCS), a person granted Unique Identification Number. It is important to note that a taxpayer is NOT required to file all the types of returns. In fact, taxpayers are required to file returns depending on the activities they undertake. The GST Council has however recommended to ease the compliance requirements for small tax payers by allowing taxpayers with annual aggregate turnover up to Rs. 1.5 Crore to file details of outward supplies in FORM GSTR-1 on a quarterly basis and on monthly basis by taxpayers with annual aggregate turnover greater than Rs. 1.5 Crore. Further, GST Council has recommended to postpone the date of filing of Forms GSTR-2 and GSTR-3 for all normal tax payers, irrespective of turnover, till further announcements are made in this regard.

All the returns are to be filed online. Returns can be filed using any of the following methods:

  1. GSTN portal gst.gov.in
  2. Offline utilities provided by GSTN
  3. GST Suvidha Providers (GSPs). If a tax payer is already using the services of an ERP providers such as Tally, SAP, Oracle etc, there is a high likelihood that these ERP providers would provide inbuilt solutions in the existing ERP systems.

Following table lists the various types of returns under GST Law.

Return Description Who Files? Standard Date for fil­ing
G S T R – 1* Statement of Outward sup- plies of Goods or Services Normal Reg-
istered Person
10th       of                the

next month

G S T R – 2* Statement of Inward sup- plies of Goods or services Normal Reg- istered person 15th       of                the

next month

GSTR- 3* Return for a normal tax- payer Normal Reg- istered Person 20th       of                the

next month

G S T R – 3B Simple Monthly Return  for the                period

Jul y , 2017 to March,

2018

Normal Registered Person 20th of the next month
GSTR-4 Quarterly Re- turn Taxable Person opting for Composition Levy 18   th of the Month

Succeeding the

quarter

GSTR-5 Monthly return for a non-resident taxpayer Non-resident taxpayer 20th       of the

Month succeeding                tax

Period & within 7 days after expiry of registration

G S T R – 5A Monthly return for a person supplying OIDAR services from a place out­side India to a non-taxable online recipi­ent Supplier of OIDAR Services 20th       of                the

next month

GSTR-6 Monthly return for an Input Service Distributor (ISD) Input Service Distributor 13   th    of                the

next month

GSTR-7 Monthly return for

Authorities deducting tax at source

Tax Deductor 10th       of                the

next month

GSTR-8 Monthly statement for

E-Commerce Operator de­picting sup­plies effecting through it.

E-Commerce Operator 10th       of                the

next month

GSTR-9 Annual Return Registered Person other than an ISD, TDS/TCS

Taxpayer, casual taxable person and

Non-resident taxpayer.

31 st              Decemberof                next

Financial Year

GSTR- Simplified Annual Return under

Composition

Scheme

Taxable Person opting for Composition Levy 31st           December of                next

Financial Year

9A
GSTR- Final Return Taxable person                whose

registration has been sur- rendered or cancelled.

Within three
10 months of the date of can-cellation or date of order

of                cancella-

tion,                which-

ever is later.

G S T R – 11 Details of inward supplies to be                furnished by       a person having

UIN

Persons who have      been

Issued a Unique Identity Number(UIN)

28th       of                the

next month

* Registered persons having aggregate turnover of up to 1.5 Crore rupees in the preceding financial year or the current financial year shall furnish GSTR-l on a quarterly basis. Other Registered persons having aggregate turnover of more than 1.5 Crore rupees shall furnish these returns on a monthly basis. Filing of GSTR-2 and GSTR-3 has been postponed till a further announcement in this regard is made.

Calendar for Return filing

The due dates for filing various GST returns may vary from the Standard dates mentioned in the table above. Various notifications are issued from time to time in this regard and as per the notifications issued till 29/12/2017.

Return Category                         of

Taxpayer

Time Period Due Date
G S T R – 3B All taxpayers to file along with payment of tax Every month till March 2018 20th                                                                       of the

succeeding month

TR-1 Taxpayers with Annual aggregate turnover

up to Rs 1.5 Crore to file on Quarterly basis

July-Sep 2017 10th                                                                                     Jan

2018

Oct-Dec

2017

15th                                                                                        Feb

2018

Jan-Mar 2018 30th                                                                                    April

2018

Taxpayers with

annual                        aggre-

gate                 turnover

of more than Rs 1.5 Crore to file on Monthly basis

July-Oct 2017 10th                                                                                     Jan

2018

Nov 2017 10th                                                                                     Jan

2018

Dec 2017 10th                                                                                        Feb

2018

Jan 2018 10th                                                                                             Mar

2018

Feb 2018 10th                                                                                       April

2018

Mar 2018 10th                                                                                          May

2018

GSTR-4 Taxpayers who have opted for Composition scheme to file every quarter Jul-Sep 2017 24th                                                                                      Dec

2017

GSTR-5 Non                                                                    Resident Jul-Dec 2017 31st Jan 2018
Taxable                       Per-

son to file every month

G S T R – 5A Taxpayers sup-
plying OIDAR
services                    from

a       place                 out-

side             India          to

a             non-taxable
online recipient

Jul-Dec 2017 31St an 2018
GSTR-6 Input                      Service Jul 2017 31st                                                                                 Dec
Distributor 2017

Note: Due dates have not been notified for GSTR-2 and GSTR-3 for any of the months. That is, a taxpayer need not file GSTR-2 and GSTR-3 for any of the months from July 2017 until a notification is issued in this regard mentioning the due dates. Till such time, Form GSTR-3B is required to be filed by tax payers instead of Form GSTR-3.

Revision of Returns:

The mechanism of filing of revised returns for any correction of errors/omissions has been done away with. The rectification of errors/omissions is allowed in the return for subsequent month(s). However, no rectification is allowed after furnishing of 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.

Interest on Late GST Payment

An interest of 18 percent is levied on the late payment of taxes under the GST regime. The interest would be levied for the days for which tax was not paid after the due date.

Penalty for non-filing of GST Returns

In case a taxpayer does not file his/her return within the due dates, he/she shall have to pay a late fee of Rs. 200/- i.e. Rs.100/- for CGST and Rs.100/- for SGST per day (up to a maximum of Rs. 5,000/-) from the due date to the date when the returns are actually filed.

Note: In case of GSTR-3B,

  • For the months July to September, 2017, the late fee payable for failure to furnish the return has been waived completely.
  • From the month of October 2017 onwards, the GST Council has recommended that the amount of late fee payable by a taxpayer whose tax liability for that month is ‘NIL’ is Rs. 20/- per day (Rs. 10/- per day each under CGST & SGST Acts). However, if the tax liability for that month is not `MU, the amount of late fee is Rs 50/- per day (Rs. 25/- per day each under CGST & SGST Acts) An overview of GSTR-1, GSTR-2 and GSTR-3

The population of these returns is explained by the following graphic:

Tax Payer
GSTR1
(Signifies Tax Liability)

Tax Payer
GSTR2
(Signifies ITC Availability)

Tax Payer
GSTR3
Cash to be paid

Tax Liability — ITC Available

NOTE:

  1. Taxpayer’s GSTR2 is auto-populated from the Suppliers’ GSTR-1s
  2. Taxpayer’s GSTR3 is significantly auto-populated from his/her’s GSTR1 and GSTR2

Return Filing Milestones:

ITC Matching and Auto-Reversal:

  1. It is a mechanism to prevent revenue leakage and to facilitate availment of eligible and rightful ITC by
  2. The process of ITC Matching begins after the due date for filing of the return (20th). This is carried out by GSTN.
  3. The details of every inward supply furnished by the taxable person (i.e. the “recipient” of goods and/or services) in form GSTR-2 shall be matched with the corresponding details of outward supply furnished by the corresponding taxable person (i.e. the “supplier” of goods and / or services) in his valid return. A return may be considered to be a valid return only when the appropriate GST has been paid in full by the taxable person as shown in such return for a given tax period.
  4. In case the details match, then the ITC claimed by the recipient in his valid returns shall be considered as finally accepted and such acceptance shall be communicated to the recipient. Failure to file valid return by the supplier may lead to denial of ITC in the hands of the recipient.
  5. In case the ITC claimed by the recipient is in excess of the tax declared by the supplier or where the details of outward supply are not declared by the supplier in his valid returns, the discrepancy shall be communicated to both the supplier and the Similarly, in case, there is duplication of claim of ITC, the same shall be communicated to the recipient.
  6. The recipient will be asked to rectify the discrepancy of excess claim of ITC and in case the Supplier has not rectified the discrepancy communicated in his valid returns for the month in which discrepancy iscommunicated then such excess ITC as claimed by the recipient shall be added to the output tax liability of the recipient in the succeeding month.
  7. Similarly, duplication of ITC claimed by the recipient shall be added to the output tax liability of the recipient in the month in which such duplication is communicated.
  8. The recipient shall be liable to pay interest on the excess or duplicate ITC added back to the output tax liability of the recipient from the date of availing of ITC till the corresponding additions are made in their returns.
  9. Re-claim of ITC refers to taking back the ITC reversed in the Electronic Credit Ledger of the recipient by way of reducing the output tax liability. Such re-claim can be made by the recipient only in case the supplier declares the details of invoice and/or Debit Notes in his valid return within the prescribed timeframe. In such case, the interest paid by the recipient shall be refunded to him by way of crediting the amount to his Electronic Cash Ledger.

Note: It may be noted that the return process is being examined by a Committee of officers and has not been finalised so far.

Transition Provisions under GST

GST is a significant reform in the field of indirect taxes in our country. Multiple taxes levied and collected by the Centre and States have been replaced by one tax called Goods and Services Tax (GST). GST is a multi-stage value added tax on consumption of goods or services or both.

As GST sought to consolidate multiple taxes into one it was very essential to have transitional provisions to ensure that the transition to the GST regime is very smooth and hassle free and no ITC (input tax credit) / benefits earned in the existing regime are lost. The transition provisions can be categorized under three heads:

  1. relating to input tax credit
  2. Continuance of existing procedures such as job work for a reasonable period without any adverse conse­quence under GST law.
  3. All claims (pending as well as future) pertaining to ex­isting laws filed before, on or after the appointed day.
  4. a) Transitional arrangements for ITC

Elaborate provisions have been made to carry forward the ITC earned under the existing law. Such credit should be permissible under GST law. However, the taxable person opting for composition scheme would not be eligible for carry forward of existing ITC. ITC of various taxes under the existing laws (CENVAT credit, VAT etc.) would be carried forward as under:

  1. Closing balance of the credit in the last returns:

The closing balance of the CENVAT credit /VAT in the last returns filed under the existing law can be taken as credit in electronic credit ledger. Such credit would be available only when returns for the previous last six months have been filed under the existing law. In order to claim this credit, declaration in form GST TRAN 1 is required to be furnished on the common portal within ninety days from the appointed day i.e. 1st July, 2017 or within such extended time.

  1. Unavailed credit on capital goods:

The balance instalment of un-availed credit on capital goods credit can also be taken by filing the requisite declaration in the GST TRAN 1.

  1. Credit on duty paid stock:

A registered taxable person, other than manufacturer or service provider, may have a duty paid goods in his stock on 1st July, 2017. GST would be payable on all supplies of goods or services made after the appointed day. It is not the intention of the Government to collect tax twice on the same goods. Hence, in such cases, it has been provided that the credit of the duty/tax paid earlier would be admissible as credit. Such credit can be taken as under:

  1. credit shall be taken on the basis of invoice evidenc­ing payment of duty of excise or VAT
  2. such invoices should be less than one-year old.
  • declare the stock of duty paid goods within pre­scribed time on the common portal.
  1. d) credit on duty paid stock when registered person does not possess the document evidencing payment of excise duty/VAT.

For such traders who do not have excise or VAT Invoice, there is a scheme to allow credit to them on the duty paid stock. The features of this scheme are as under:

  • The scheme is operative only for six months from 1st July, 2017. It is not available to manufacturer or supplier of service. It is available to traders only.
  • Credit @ 60% on such goods which attract central tax @ 9% or more and @ 40% for other goods of GST paid on such stock cleared after 1st July, 2017 would be allowed. However, such goods should not be unconditionally exempted goods or taxed at nil rate under the existing law. It has also been provided that where integrated tax is paid on such goods, the amount of credit shall be allowed at @ 30% and 20% respectively of the said tax.

  • Credit would be allowed after the GST is paid on such goods subject to the condition that the benefit of such credit is passed on to the customer by way of reduced prices.
  1. A statement of supply of such goods in each of six tax period has to be submitted
  2. Stocks stored should be easily identifiable.
  3. Credit relating to exempted goods under the existing law which are now taxable.

Input Tax Credit of CENVAT / VAT in respect of input, semi-finished and finished goods in stock attributable to such exempted goods or services which are now taxable can also be taken in the same manner.

  1. Input /input services in transit:

There might be a scenario where input or input services are received on or after the appointed day but the duty or tax on the same was paid by the supplier under the existing law. Registered person (RP) may take credit of eligible duties and taxes, provided the invoice has been recorded in the books within 30 days from 1st July, 2017. The period can be extended by the Commissioner GST by another 30 days. A statement of such invoices have to be furnished. ISD can also distribute such credit.

  1. Tax paid under existing law under composition scheme:

Those taxpayers who paid tax at fixed rate or fixed amount in lieu of tax payable under the existing law but are working under normal scheme under GST can claim credit on his input stock, semi-finished and finished stock on the appointed date subject to the following conditions: –

  1. Such Input stock used for taxable supply under this
  2. Registered person is not covered under section 10 (composition scheme) of this Act.
  • Registered person is eligible for ITC under this Act.
  1. Registered person is in possession of such Invoice or other duty payment documents.
  2. Such Invoices are not more than twelve months old on appointed day.
  3. ITC in case of Centralized Registration under ser­vice tax:

Such registered person can take credit of the amount of CENVAT carry forwarded in return furnished under the existing law, if the original / revised return under the existing law has been filed within three months. Such credit may be transferred to any of the registered persons having the same PAN for which the centralized registration was obtained.

  1. Reclaim the reversed Input Service credit:

CENVAT credit reversed on account of non-payment of consideration within three months can be reclaimed if payment is made to the supplier of service within 3 months from lst July, 2017

  1. Where any goods or capital goods belonging to the principal are lying at the premises of the agent on the Appointed Day:

This provision is specific to SGST law. In such cases, agent shall be entitled to take credit subject to the following conditions:

  1. the agent is a registered taxable person
  2. both the principal and the agent declare the details of stock
  • the invoices are not earlier than twelve months
  1. the principal has either reversed or not availed of the input tax credit.
  2. b) Transition provisions relating to job work, goods re­turned/ sent on approval etc.:
  3. a) Job work:

Inputs, semi-finished goods or finished goods were sent to the job worker or any other premises without payment of duty/VAT under the existing law. No GST is payable by the job worker when such goods are returned by him within six months after 1st July, 2017. The period can be extended by the Commissioner, GST by another two months.

If not returned within the prescribed period, then ITC shall be liable to be recovered from the principal as per second proviso to section 141(1) of the Act. In addition, the job worker will have to pay the GST on such supplies. In case of semi-finished goods, the manufacturer may transfer the goods to premises of a registered person without payment of tax within the prescribed period. In case of finished goods, the manufacturer may transfer the goods on payment of tax or clear for export within the prescribed period.

  1. Goods removed before 6 months of the appointed day i.e. 1st July, 2017 but returned within 6 months from 1st July, 2017:

If such goods are returned by an unregistered person, then refund of the duty/VAT paid under existing law can be claimed

If returned by a registered person, then return of goods shall be treated as supply of goods (ITC can be claimed)

  1. Goods sent on approval basis before 6 months of the appointed day i.e. lst July, 2017 but returned within 6 months from 1st July, 2017:

No tax is payable by the person returning the goods. Commissioner may extend the period by 2 months. If returned after that, tax is payable if the supply is taxable under GST (by the recipient. If not returned, tax is payable by the person who sent the goods on approval basis.

  1. TDS deducted in VAT

Where a supplier has made any sale of goods and tax was required to be deducted under VAT Act and Invoice was issued before the appointed day, however, the payment was made on or after appointed day. In such cases no TDS under GST is to be deducted.

  1. Price revision in respect of existing contracts

In case of upward price revision, a registered person will issue a supplementary invoice or debit notes within 30 days from the date of revision and such revision shall be treated as supply under GST and tax is payable under this Act.

In case of downward revision, registered person may issue credit note within 30 days from such revision and credit note shall be deemed to have been issued in respect of outward supply made under this Act. A registered person will reduce his tax liability for such credit note subject to reversal of credit by the recipient.

  1. Proceedings under the existing laws:

GST law has become operational w.e.f. 1st July, 2017 and existing laws have been repealed. Elaborate provisions have been made to save the pending as well future claims relating to existing law made before, on or after the appointed day i.e. 1st July, 2017. Such proceedings may pertain to refund claims of CENVAT credit/VAT or export related rebate or service tax, such proceedings may either result in recovery of tax or refund.

All such cases would be disposed of under the existing law. If any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse. Refund of CENVAT credit shall be paid in cash. There will be no refund of CENVAT if already carry forwarded. If any amount becomes recoverable, the same shall be recovered as arrear of tax under GST Act.

Statutory provisions relating to transition are contained in chapter XX (section 139 to 142) of the CGST Act, 2017, SGST Act(s), 2017 and Rule 117 to 121 of the CGST Rules, 2017.

Input Tax Credit Mechanism in GST

Uninterrupted and seamless chain of input tax credit (hereinafter referred to as, “ITC”) is one of the key features of Goods and Services Tax. ITC is a mechanism to avoid cascading of taxes. Cascading of taxes, in simple language, is `tax on tax’. Under the present system of taxation, credit of taxes being levied by Central Government is not available as set-off for payment of taxes levied by State Governments, and vice versa. One of the most important features of the GST system is that the entire supply chain would be subject to GST to be levied by Central and State Government concurrently. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage.

Let us understand how ‘cascading’ of taxes takes place in the present regime. Central excise duty charged on inputs used for manufacture of final product can be availed as credit for payment of Central Excise Duty on the final product. For example, to manufacture a pen, the manufacturer requires, plastic granules, refill tube, metal clip, etc. All

these ‘inputs’ are chargeable to central excise duty. Once a `pen is manufactured by using these inputs, the pen is also chargeable to central excise duty. Let us assume that the cost of all the above mentioned inputs is say, Rs.10/- on which central excise duty @10% is paid, means Re.1. The cost of the manufactured pen is say Rs.20/-, the central excise duty payable on the pen @10% will be Rs.2/- . Now the manufacturer of the pen can use the duty paid on inputs, i.e. Re.1/- for payment of duty on the pen. So he will use Re.1 paid on inputs and he will pay Re.1/- through cash (1+1=2), the price of the pen becomes Rs. 22/-. In effect he actually pays duty on the ‘value added’ over and above the cost of the inputs. This mechanism eliminates cascading of taxes. However, when the pen is sold by the manufacturer to a trader he is required to levy VAT on such sale. But under the present system, the manufacturer cannot use the credit of central excise duty paid on the pen for payment of VAT, as the two levies are being levied by Central and State government respectively with no statutory linkage between the two. Hence he is required to pay VAT on the entire value of the pen, i.e. Rs.22/-, which actually includes the central excise duty to the tune of Rs.2/-. This is cascading of taxes or tax on tax as now VAT is not only paid on the value of pen i.e. Rs.20/- but also on tax i.e. Rs.2/-.

Goods and Services Tax (GST) would mitigate such cascading of taxes. Under this new system most of the indirect taxes levied by Central and the State Governments on supply of goods or services or both would be combined together under a single levy. The major taxes/levies which are going to be clubbed together or subsumed in the GST regime are as under:

Central Taxes State Taxes
·         Central Excise duty

·         Additional duties of excise

·         Excise duty levied under Medicinal & Toilets Preparation Act

·         Additional duties of customs (CVD & SAD)

·         Service Tax

·         Surcharges &Cesses

·         State VAT / Sales Tax

·         Central Sales Tax

·         Purchase Tax

·         Entertainment Tax (other than those levied by local bodies)

·         Luxury Tax

·         Entry Tax (All forms)

·         Taxes on lottery, betting & gambling

·         Surcharges &Cesses

GST comprises of the following levies:

  1. Central Goods and Services Tax (CGST)[also known as Central Tax] on intra-state or intra-union territory without legislature supply of goods or services or both.
  2. State Goods and Services Tax (SGST) [also known as State Tax]on intra-state supply of goods or services or
  3. Union Territory Goods and Services Tax (UTGST)[also known as Union territory Tax] on intra-union territory supply of goods or services or both.
  4. Integrated Goods and Services Tax (IGST)[also known as Integrated Tax] on inter-state supply of goods or services or both. In case of import of goods also the present levy of Countervailing Duty (CVD) and Special Additional Duty (SAD) would be replaced by Integrated tax.

The protocol to avail and utilise the credit of these taxes is as follows:

Credit of To be utilised first
for payment of
May be utilised fur-ther for payment of
CGST CGST IGST
SGST/UTGST SGST/UTGST IGST
IGST IGST CGST, then SGST/
UTGST

Credit of CGST cannot be used for payment of SGST/UTGST and credit of SGST / UTGST cannot be utilised for payment of CGST.

Some of the technical aspects of the scheme of Input Tax Credit are as under:

  1. Any registered person can avail credit of tax paid on the inward supply of goods or services or both which is used or intended to be used in the course or further­ance of business.
  2. The pre-requisites for availing credit by registered per­son are:
  3. He is in possession of tax invoice or any other specified tax paying document.
  4. He has received the goods or services. “Bill to ship” scenarios also included.
  5. Tax is actually paid by the supplier.
  6. He has furnished the return.
  7. If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the in­puts is received.
  8. He should pay the supplier the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed.
  9. Documents on the basis of which credit can be availed are:
  10. Invoice issued by a supplier of goods or services or both
  11. Invoice issued by recipient along with proof of pay­ment of tax
  12. A debit note issued by supplier
  13. Bill of entry or similar document prescribed underCustoms Act
  14. Revised invoice
  15. Document issued by Input Service Distributor
  16. No ITC beyond September of the following FY to which invoice pertains or date of filing of annual re­turn, whichever is earlier
  17. The Input Service Distributor (ISD) may distribute the credit available for distribution in the same month in which it is availed. The credit of CGST, SGST, UTGST and IGST shall be distributed as per the provisions of Rule 4(1)(d) of ITC Rules. ISD shall issue invoice in accordance with the provisions made under Rule 9(1) of Invoice Rules.
  18. ITC is not available in some cases as mentioned in sec­tion 17(5) of CGST Act, 2017. Some of them are as follows:
  19. motor vehicles and other conveyances except under specified circumstances.
  20. goods and / or services provided in relation to
  21. food and beverages, outdoor catering, beauty treatment, health services, cosmet­ic and plastic surgery, except under speci­fied circumstances;
  22. membership of a club, health and fitness center;
  • Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law;
  1. travel benefits extended to employees on vacation such as leave or home travel con­cession;
  2. Works contract services when supplied for construction of immovable property, other than plant &machinery, except where it is an input service for further supply of works contract;
  3. Goods or services received by a taxable person for con­struction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business;
  4. goods and/or services on which tax has been paid un­der composition scheme;
  5. goods and/or services used for private or personal con­sumption, to the extent they are so consumed;
  6. Goods lost, stolen, destroyed, written off, gifted, or free samples;
  7. Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.
  8. Special circumstances under which ITC is available:
  9. a) A person who has applied for registration within 30 days of becoming liable for registration is en­titled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day imme­diately preceding the date from which he becomes liable to pay tax.
  10. A person who has taken voluntary registration un­der section 23(3) of the CGST Act, 2017 is enti­tled to ITC of input tax in respect of goods held in stock(inputs as such and inputs contained in semi-finished or finished goods) on the day imme­diately preceding the date of registration.
  11. A person switching over to normal scheme from composition scheme under section10 is entitled to ITC in respect of goods held in stock(inputs as such and inputs contained in semi-finished or fin­ished goods) and capital goods on the day imme­diately preceding the date from which he becomes liable to pay tax as normal taxpayer.
  12. Where an exempt supply of goods or services or both become taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) re­latable to exempt supplies. He shall also be entitled to take credit on capital goods used exclusively for such exempt supply subject to reductions for the earlier usage as prescribed in the rules.
  13. ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the sup­plier
  14. In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilised ITC shall be allowed to be trans­ferred to the transferee.
  15. A person switching over from composition scheme under section 10to normal scheme or where a tax­able supply become exempt, the ITC availed in re­spect of goods held in stock (inputs as such and in­puts contained in semi-finished or finished goods) as well as capital goods will have to be paid.
  16. In case of supply of capital goods or plant and machinery, on which ITC is taken, an amount equivalent to ITC availed minus the reduction as prescribed in rules (5% for every quarter or part thereof0 shall have to be paid. In case the tax on transaction value of the supply is more, the same would have to be paid.

Electronic Way Bill in GST

Introduction

A waybill is a receipt or a document issued by a carrier giving details and instructions relating to the shipment of a consignment of goods and the details include name of consignor, consignee, the point of origin of the consignment, its destination, and route.

Electronic Way Bill (E-Way Bill) is basically a compliance mechanism wherein by way of a digital interface the person causing the movement of goods uploads the relevant information prior to the commencement of movement of goods and generates e-way bill on the GST portal.

Rule 138 of the CGST Rules, 2017 provides for the e-way bill mechanism and in this context it is important to note that “information is to be furnished prior to the commencement of movement of goods” and “is to be issued whether the movement is in relation to a supply or for reasons other than supply”.

E-Way Bill under GST

E-way bill is an electronic document generated on the GST portal evidencing movement of goods. It has two Components – Part A comprising of details of GSTIN of recipient, place of delivery (PIN Code), invoice or challan number and date, value of goods, HSN code, transport document number (Goods Receipt Number or Railway Receipt Number or Airway Bill Number or Bill of Lading Number) and reasons for transportation; and Part B comprising of transporter details (Vehicle number).

As per Rule 138 of the CGST Rules, 2017, every registered person who causes movement of goods (which may not necessarily be on account of supply) of consignment value more than Rs. 50000/- is required to furnish above mentioned information in part A of e-way bill. The part B containing transport details helps in generation of e-way bill.

Who should generate the eway bill and Why?

E-way bill is to be generated by the consignor or consignee himself if the transportation is being done in own/hired conveyance or by railways, by air or by Vessel. If the goods are handed over to a transporter for transportation by road, E-way bill is to be generated by the Transporter. Where neither the consignor nor consignee generates the e-way bill and the value of goods is more than Rs.50,000/- it shall be the responsibility of the transporter to generate it.

Further, it has been provided that where goods are sent by a principal located in one State to a job-worker located in any other State, the e-way bill shall be generated by the principal irrespective of the value of the consignment.

Also, where handicraft goods are transported from one State to another by a person who has been exempted from the requirement of obtaining registration, the e-way bill shall be generated by the said person irrespective of the value of the consignment.

How is it generated?

An e-waybill contains two parts- Part A to be furnished by the person who is causing movement of goods of consignment value exceeding Rs. 50,000/- and part B (transport details) to be furnished by the person who is transporting the goods. Where the goods are transported by a registered person-whether as consignor or recipient, the said person shall have to generate the e-way bill by furnishing information in part B on the GST common portal. Where the e-way bill is not generated by registered person and the goods are handed over to the transporter for transportation by road, the registered person shall furnish the information relating to the transporter in Part B of FORM GST EVVB-01 on the common portal and the e-way bill shall be generated by the transporter on the said portal on the basis of the information furnished by the registered person in Part A of

FORM GST EWB-01.

A registered person may obtain an Invoice Reference Number from the common portal by uploading, on the said portal, a tax invoice issued by him in FORM GST INV-1 and produce the same for verification by the proper officer in lieu of the tax invoice and such number shall be valid for a period of thirty days from the date of uploading.

In the above case, the registered person will not have to upload the information in Part A of FORM GST EWB-01 for generation of e-way bill and the same shall be auto-populated by the common portal on the basis of the information furnished in FORM GST INV-1.

Upon generation of the e-way bill on the common portal, a unique e-way bill number (EBN) generated by the common portal, shall be made available to the supplier, the recipient and the transporter on the common portal.

The details of e-way bill generated shall be made available to the recipient, if registered, on the common portal, who shall communicate his acceptance or rejection of the consignment covered by the e-way bill. In case, the recipient does not communicate his acceptance or rejection within seventy-two hours of the details being made available to him on the common portal, it shall be deemed that he has accepted the said details.

Purpose of E-Way Bill

E-way bill is a mechanism to ensure that goods being transported comply with the GST Law and is an effective tool to track movement of goods and check tax evasion.

Validity of E-Way Bill

The validity of e-way bill depends on the distance to be travelled by the goods. For a distance of less than 100 Km the e-way bill will be valid for a day from the relevant date. For every 100 Km thereafter, the validity will be additional one day from the relevant date. The “relevant date” shall mean the date on which the e-way bill has been generated and the period of validity shall be counted from the time

at which the e-way bill has been generated and each day shall be counted as twenty-four hours. In general, the validity of the e-way bill cannot be extended. However, Commissioner may extend the validity period only by way of issue of notification for certain categories of goods which shall be specified later.

Further, if under circumstances of an exceptional nature, the goods cannot be transported within the validity period of the e-way bill, the transporter may generate another e-way bill after updating the details in Part B of FORM GST EWB-01.

Cancellation of E-Way Bill

Where an e-way bill has been generated under this rule, but goods are either not transported or are not transported as per the details furnished in the e-way bill, the e-way bill may be cancelled electronically on the common portal, either directly or through a Facilitation Centre notified by the Commissioner, within 24 hours of generation of the e-way bill. However, an e-way bill cannot be cancelled if it has been verified in transit in accordance with the provisions of rule 138B of the CGST Rules, 2017 .

The facility of generation and cancellation of e-way bill will also be made available through SMS.

Finer Points

An e-way bill has to be prepared for every consignment where the value of the consignment exceeds Rs. 50,000/-. Where multiple consignments of varying values (per consignment) are carried in a single vehicle, e-way bill needs to be mandatorily generated only for those consignments whose value exceeds Rs. 50,000/-. This does not however preclude the consignor/consignee/transporter to generate e-way bills even for individual consignments whose value is less than Rs. 50000/- per consignment. For multiple consignments being carried in the same vehicle, the transporter to prepare a consolidated e-way bill by indicating serial number of each e-way bill, on the common prior to commencement of transport of goods.

There is always a possibility that multiple vehicles are used for carrying the same consignment to its destination or unforeseen exigencies may require the consignments to be carried in a different conveyance than the original one. For such situations, the rules provide that any transporter transferring goods from one conveyance to another in the course of transit shall, before such transfer and further movement of goods, update the details of the conveyance in the e-way bill on the common portal in FORM GST EWB-01.

The person in charge of a conveyance has to carry the invoice or bill of supply or delivery challan, as the case may be; and a copy of the e-way bill or the e-way bill number, either physically or mapped to a Radio Frequency Identification Device embedded on to the conveyance in such manner as may be notified by the Commissioner. However, where circumstances so warrant, the Commissioner may, by notification, require the person-in-charge of the conveyance to carry the following documents instead of the e-way bill-

  1. tax invoice or bill of supply or bill of entry; or
  2. a delivery challan, where the goods are transported for reasons other than by way of supply.

It is also be noted that the Commissioner may, by notification, require a class of transporters to obtain a unique Radio Frequency Identification Device and get the said device embedded on to the conveyance and map the e-way bill to the Radio Frequency Identification Device prior to the movement of goods.

E-Way bill to be issued whether for supply or otherwise

E-way bill is to be issued irrespective of whether the movement of goods is caused by reasons of supply or otherwise. In respect of transportation for reasons other than supply, movement could be in view of export/import, job-work, SKD or CKD, recipient not known, line sales, sales returns, exhibition or fairs, for own use, sale on approval basis etc.

Exceptions to e-way bill requirement

  1. No e-way bill is required to be generated in the following cases
  2. Transport of goods as specified in Annexure to Rule 138 of the CGST Rules, 2017 goods being transported by a non-motorised convey­ance;

  1. goods being transported from the port, airport, air car­go complex and land customs station to an inland container depot or a container freight station for clearance by Customs; in respect of movement of goods within such areas as are notified under rule 138(14) (d) of the SGST Rules, 2017 of the concerned State; and

 

  1. Consignment value less than Rs. 50,000/-Consequences of non-conformance to E-way bill rules

If e-way bills, wherever required, are not issued in accordance with the provisions contained in Rule 138 of the CGST Rules, 2017, the same will be considered as contravention of rules. As per Section 122 of the CGST Act, 2017, a taxable person who transports any taxable goods without the cover of specified documents (e-way bill is one of the specified documents) shall be liable to a penalty of Rs. 10,000/- or tax sought to be evaded (wherever applicable) whichever is greater. As per Section 129 of CGST Act, 2017, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made there under, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure.

Enforcement

The Commissioner or an officer empowered by him in this behalf may authorise the proper officer to intercept any conveyance to verify the e-way bill or the e-way bill number in physical form for all inter-State and intra-State movement of goods.

The physical verification of conveyances may also be carried out by the proper officer as authorised by the Commissioner or an officer empowered by him in this behalf. Physical verification of a specific conveyance can also be carried out by any officer, on receipt of specific information on evasion of tax, after obtaining necessary approval of the Commissioner or an officer authorised by him in this behalf.

A summary report of every inspection of goods in transit shall be recorded online by the proper officer in Part A of FORM GST EWB-03 within twenty-four hours of inspection and the final report in Part B of FORM GST EWB-03 shall be recorded within three days of such inspection.

Once physical verification of goods being transported on any conveyance has been done during transit at one place within the State or in any other State, no further physical verification of the said conveyance shall be carried out again in the State, unless a specific information relating to evasion of tax is made available subsequently.

Where a vehicle has been intercepted and detained for a period exceeding thirty minutes, the transporter may upload the said information in FORM GST EWB-04 on the common portal.

Recent Developments in respect of the E-Way Bill mechanism under GST.

Decision of GST Council : Inter-State e-way Bill to be made compulsory from 1st of February, 2018; system to be ready by 16th of January, 2018.

The 24th meeting of the GST Council held on 16.12.2017 discussed about the implementation of e-way Bill system in the country. Till such time as National e-way Bill is ready, the States were authorized to continue their own separate e-way Bill systems. However, it was represented by the trade and transporters that this is causing undue hardship in inter-State movement of goods and therefore, bringing in an early all India system of e-way Bill has become a necessity. The GST Council reviewed the progress of readiness of hardware and software required for the introduction of nationwide e-way Bill system. After discussions with all the states, the following decisions are taken :-

  • The nationwide e-way Bill system will be ready to be rolled out on a trial basis latest by 16th January, 2018. Trade and transporters can start using this system on a voluntary basis from 16th January, 2018.
  • The rules for implementation of nationwide e-way Bill system for inter-State movement of goods on a compulsory basis will be notified with effect from 1st February, 2018. This will bring uniformity across the States for seamless inter-State movement of goods. Notification no. 74/2017-Central Tax dated 29.12.2017 has been issued which notifies 1st Feb­ruary, 2018 from which E-Way Bill Rules will come into force.
  • While the system for both inter-State and intra-State e-way Bill generation will be ready by 16th January, 2018, the States may choose their own tim­ings for implementation of e-way Bill for intra-State movement of goods on any date before 1st June, 2018. There are certain States which are already hav­ing system of e-way Bill for intra-State as well as inter-State movement and some of those States can be early adopters of national e-way Bill system for intra-State movement also. But in any case uniform system of e-way Bill for inter-State as well as in­tra-State movement will be implemented across the country by 1st June, 2018.

 Conclusion

The e-way bill provisions aim to remove the ills of the erstwhile way bill system prevailing under VAT in different states, which was a major contributor to the bottlenecks at the check posts. Moreover, different states prescribed different e-way bill rules which made compliance difficult. The e-way bill provisions under GST will bring in a uniform e-way bill rule which will be applicable throughout the country. The physical interface will pave way for digital interface which will facilitate faster movement of goods. It is bound to improve the turnaround time of vehicles and help the logistics industry by increasing the average distances travelled, reducing the travel time as well as costs.

Electronic Cash/Credit Ledgers and Liability Register in GST

Introduction:

On the common portal each registered taxpayer will have one electronic register called the Electronic liability register and two electronic ledgers namely Electronic Cash Ledger and Electronic Credit Ledger. These register and ledgers will reflect the amount of tax payable, the amount available to settle the tax liability online, and input credit balance. This is a handy tool provided in the GST system wherein the registered taxpayer can have information about his liabilities and credits at a single location which can be viewed from any place by simply logging into the common portal. Electronic liability register, electronic cash ledger and electronic credit ledger of taxpayer will be updated on generation of GSTR-3 by the taxpayer. A unique identification number shall be generated at the common portal for each debit or credit to the electronic cash or credit ledger. The unique identification number relating to discharge of any liability shall be indicated in the corresponding entry in the electronicliability register. In case of any discrepancy in his electronic liability ledger, electronic cash ledger or electronic credit ledger the registered person has to communicate the same to the officer exercising jurisdiction in the matter, through the common portal in FORM GST PMT-04.

Electronic liability register:

The electronic liability register is maintained in FORM GST PMT-01 for each person liable to pay tax, interest, penalty, late fee or any other amount on the common portal and all amounts payable by him shall be debited to the said register. The electronic liability register will be maintained in two parts at the common portal.

Part I will be for maintaining the return related liabilities. All liabilities accruing due to return and payments made against the same will be recorded in this part of the register. Liabilities due to opting for composition and cancellation of registration will also be covered in this part. Such liabilities shall be populated in the liability register of the tax period in which the date of application or order falls, as the case maybe.

Part II will be for maintaining the complete description of the transactions of all liabilities accruing, other than return related liabilities. Such other liabilities may include the following:

  • Liabilities due to reduction or enhancement in the amount payable due to decision of appeal, rectification, revision, review etc.;
  • Refund of pre-deposit that can be claimed for a particular demand if appeal is allowed;
  • Payment made against the show cause notice or any other payment made voluntarily;
  • Reduction in amount of penalty (which would be automatically shown) based on payment made after show cause notice or within the time specified in the Act or the rules.

The electronic liability register of the person shall indicate the following-

  • the amount payable towards tax, interest, late fee or any other amount payable as per the return furnished by the said person;
  • the amount of tax, interest, penalty or any other amount payable as determined by a proper officer in pursuance of any proceedings under the Act or as ascertained by the said person;
  • the amount of tax and interest payable as a result of mismatch of input tax credit
  • or any amount of interest that may accrue from time to time;
  • the amount deducted by the Government authorities from the payment made or credited to the supplier of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakhs and fifty thousand rupees;
  • the amount required to be collected by every electronic commerce operator on the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator;
  • the amount payable on reverse charge basis;
  • the amount payable under the Composition levy scheme;
  • amount payable towards interest, penalty, fee;
  • Any other amount under the GST Act.

Any amount of demand debited in the electronic liability register shall stand reduced to the extent of relief given by the appellate authority or Appellate Tribunal or court and the electronic liability register shall be credited accordingly.

The amount of penalty imposed or liable to be imposed shall stand reduced partly or fully, as the case may be, if the taxable person makes the payment of tax, interest and penalty specified in the show cause notice or demand order and the electronic liability register shall be credited accordingly.

Electronic cash ledger:

Every deposit made by a person by Internet banking or by using credit or debit cards or National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS) or by over the counter deposit will be credited to the electronic cash ledger. The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable.

The electronic cash ledger shall be maintained in FORM GST PMT-05 for each person, liable to pay tax, interest, penalty, late fee or any other amount, on the common portal for crediting the amount deposited and debiting the payment therefrom towards tax, interest, penalty, fee or any other amount. The payment required to be made by an unregistered person, can be made on the basis of a temporary identification number generated through the common portal.A challan in FORM GST PMT-06 can be generated on the common portal in which the details of the amount to be deposited towards tax, interest, penalty, fees or any other amount is to be entered. This challan will be valid for a period of fifteen days.

The deposit can be made through any of the following modes, namely: –

  1. Internet Banking through authorised banks;
  2. Credit card or Debit card through the authorised bank;
  • NEFT or RTGS from any bank; or
  1. Over the Counter payment through authorised banks for deposits up to Rs 10,000/- per challan per tax period, by cash, cheque or demand draft.

When the payment is made by way of NEFT or RTGS mode from any bank, the mandate form shall be generated along with the challan on the common portal and the same shall be submitted to the bank from where the payment is to be made. The mandate form shall be valid for a period of fifteen days from the date of generation of challan.

On successful credit of the amount to the concerned government account maintained in the authorised bank, a Challan Identification Number (CIN) shall be generated by the collecting bank and the same shall be indicated in the challan.

On receipt of the CIN from the collecting bank, the said amount shall be credited to the electronic cash ledger of the person on whose behalf the deposit has been made and the common portal shall make available a receipt to this effect.

In case the bank account is debited but CIN has not been generated or generated but not communicated to the common portal, then the person has to represent electronically in FORM GST PMT-07 through the common portal to the bank or electronic gateway through which the deposit was initiated.

The amount deducted under section 51 or collected under section 52 and claimed in FORM GSTR-2 by the registered person from whom the said amount was deducted or, as the case may be, collected will be credited to his electronic cash ledger.

Refund from cash ledger can only be claimed only when all  the return related liabilities for that tax period have been discharged. A registered person, claiming refund of any balance in the electronic cash ledger can claim such refund in Part B of the return in FORM GSTR-3 and such return shall be deemed to be an application filed under section 54 of the CGST Act, 2017.

Electronic credit ledger:

The electronic credit ledger shall be maintained in FORM GST PMT-02 for each registered person eligible for input tax credit on the common portal and every claim of input tax credit will be credited to this ledger. The amount available in the electronic credit ledger can be used for making any payment towards output tax.

In case a registered person has claimed refund of any unutilized amount from the electronic credit ledger in accordance with the provisions of section 54, the amount to the extent of the claim shall be debited in the said ledger.

If the refund so filed is rejected, either fully or partly, the amount debited to the extent of rejection, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.

Unless otherwise allowed, entries will not be allowed to be made directly in the electronic credit ledger under any circumstance.

The Meaning and Scope of Supply

The taxable event in GST is supply of goods or services or both. Various taxable events like manufacture, sale, rendering of service, purchase, entry into a territory of State etc. have been done away with in favour of just one event i.e. supply. The constitution defines “goods and services tax” as any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption.

The Central and State governments will have simultaneous powers to levy the GST on intra-state supply. However, the Parliament alone shall have exclusive power to make laws with respect to levy of goods and services tax on inter-state supply.

The term, “supply” has been inclusively defined in the Act. The meaning and scope of supply under GST can be understood in terms of following six parameters, which can be adopted to characterize a transaction as supply:

  1. Supply of goods or services. Supply of anything other than goods or services does not attract GST
  2. Supply should be made for a consideration
  3. Supply should be made in the course or furtherance of business
  4. Supply should be made by a taxable person
  5. Supply should be a taxable supply
  6. While these six parameters describe the concept of supply, there are a few exceptions to the requirement of supply being made for a consideration and in the course or furtherance of business. Any transaction involving supply of goods or services without consideration is not a supply, barring few exceptions, in which a transaction is deemed to be a supply even without consideration. Further import of services for a consideration, whether or not in the course or furtherance of business is treated as supply.

Supply of goods or services or both

Goods as well as services have been defined in the GST Law. The securities are excluded from the definition of goods as well as that of services. Money is also excluded from the definition of goods as well as services, however, activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged are included in services.

Schedule II to the CGST Act, 2017 lists a few activities which are to be treated as supply of goods or supply of services. For instance, any transfer of title in goods would be a supply of goods, whereas any transfer of right in goods without transfer of title would be considered as services.

Further Schedule III to the CGST Act, 2017 spells out activities which shall be treated as neither supply of goods nor supply of services – in other words, outside the scope of GST.A few important ones are: –

  1. Services by an employee to the employer in the course of or in relation to his employment.
  2. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
  3. Sale of land and, sale of building where the entire consideration has been received after completion certificate is issued or after its first occupation.

 Actionable claims are included in the definition of goods, however, schedule III provides that actionable claims other than lottery, betting and gambling shall be neither goods nor services.

Supply for consideration

Consideration has specifically been defined in the CGST Act, 2017. It can be in money or kind. Any subsidy given by the Central Government or a State Government is not considered as consideration. It is immaterial whether the payment is made by the recipient or by any other person.

A deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Further, when there is barter of goods of services, the same activity constitutes supply as well as a consideration. When a barber cuts hair in exchange for a painting, hair cut is a supply of services by the barber. It is a consideration for the painting received.

However, there are exceptions to the requirement of ‘Consideration’ as a pre-condition for a supply to be called a supply as per GST. As per schedule to CGST Act, 2017, activities as mentioned below shall be treated as supply even if made without consideration.

  1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
  2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
  3. Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
  4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Supply in the Course or Furtherance of Business

GST is essentially tax only on commercial transactions. Hence only those supplies that are in the course or furtherance of business qualify as Supply under GST. Hence any supplies made by an individual in his personal capacity do not come under the ambit of GST unless they fall within the definition of business as defined in the Act. CBEC vide press release dated 13.07.2017 has clarified that sale of old gold jewellery by an individual to a jeweller will not constitute supply as the same cannot be said to be in the course or furtherance of business of the individual. Sale of goods or service even as a vocation is a supply under GST. Therefore, even if a famous politician paints paintings for charity and sells the paintings even as a one-time occurrence, the sale would constitute Supply.

However, there is one exception to this ‘Course or Furtherance of Business’ rule i.e., import of services for a consideration.

Supply by a taxable Person

A supply to attract GST should be made by a taxable person. Hence a supply between two non-taxable persons does not constitute supply under GST. A “taxable person” is a person who is registered or liable to be registered under section 22 or section 24. Hence even an unregistered person who is liable to be registered is a taxable person. Similarly, a person not liable to be registered but has taken voluntary registration and got himself registered is also a taxable person.It should be noted that GST in India is state-centric. Hence a person making supplies from different states need to take separate registration in each state. Further the person may take more than one registration within a state if the person has multiple business verticals. A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of GST. Hence a supply between these entities constitutes supply under GST.

Taxable supply

For a supply to attract GST the supply must be taxable. Taxable supply has been broadly defined and means any supply of goods or services or both which is leviable to tax under the Act. Exemptions may be provided to the specified goods or services or to a specified category of persons / entities making supply.

Supply in the taxable territory

For a supply to attract GST the place of supply should be in India except the state of Jammu and Kashmir. The place of supply of any goods or services is determined based on Sections 10, 11, 12 and 13 of IGST Act 2017.

Inter/Intra State supply

The location of the supplier and the place of supply determines whether a supply is treated as an Intra State supply or an Inter State supply. Determination of the nature of supply is essential to  ascertain whether integrated tax is to be paid or Central plus State tax are to be paid. Inter – State supply of goods means a supply of goods where the location of the supplier and place of supply are in different States or Union territories. Intra State supply of goods means supply of goods where the location of the supplier and place of supply are in the same State or Union territory. Imports, Supplies from and to SEZs are treated as deemed inter-State supplies.

Composite / Mixed supply

A composite supply means a supply made by a taxable person to a recipient comprising two or more supplies of goods or services 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. For instance, a travel ticket from Mumbai to Delhi may include service of food being served on board, free insurance, use of airport lounge. In this case, transport of passenger, constitutes the pre-dominant element of the composite supply, and is treated as the principal supply and all other supplies are ancillary.

The GST Law lays down the tax liability on a composite or mixed supply in the following manner.

  • Composite Supply comprising two or more supplies one of which is a principal supply,shall be treated as supply of such principal supply.
  • Mixed Supply comprising two or more supplies, shall be treated as supply of that particular supply which attracts the highest rate of tax.

Reverse Charge Mechanism in GST

Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. Reverse Charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.There are two type of reverse charge scenarios provided in law. First is dependent on the nature of supply and/or nature of supplier. This scenario is covered by section 9 (3) of the CGST/SGST (UTGST) Act and section 5 (3) of the IGST Act. Second scenario is covered by section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act where taxable supplies by any unregistered person to a registered person is covered.

As per the provisions of section 9(3) of CGST / SGST (UTGST) Act, 2017 / section 5(3)of IGST Act, 2017, the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reversecharge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

Similarly, section 9(4) of CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017 provides that the tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Accordingly, wherever a registered person procures supplies from an unregistered supplier, he need to pay GST on reverse charge basis.

However, supplies where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted. ( Notification 8/2017-Central Tax (Rate) dated 28.06.2017). However, vide notification no.38/2017-Central Tax (Rate) dated 13.10.2017, (corresponding IGST notification no.32/2017-Integrated Tax (Rate) dated 13.10.2017) all categories of registered persons are exempted from the provisions of reverse charge under 9(4) of CGST / SGST (UTGST) Act, 2017 / section 5(4) of IGST Act, 2017, till 31.03.2018. This exemption is available only till 31.03.2018.

The provisions of section 9(4) of the CGST Act, 2017, will not be applicable to supplies made to a TDS deductor in terms of notification no.9/2017-Central Tax (Rate) dated 28.06.2017. Thus, Government entitieswho are TDS Deductors under Section 51 of CGST Act, 2015, need not pay GST under reverse charge in case of procurements from unregistered suppliers.

Registration: A person who is required to pay tax underreverse charge has to compulsorily register under GST and the threshold limit of Rs. 20 lakh (Rs. 10 lakh for special category states except J & K) is not applicable to them.

ITC:

A supplier cannot take ITC of GST paid on goods or services used to make supplies on which recipient is liable to pay tax.

Time of Supply

The Time of supply is the point when the supply is liable to GST. One of the factor relevant for determining time of supply is the person who is liable to pay tax. In reverse charge, recipient is liable to pay GST. Thus time of supply for supplies under reverse charge is different from the supplies which are under forward charge.

In case of supply of goods, time of supply is earliest of –

  1. date of receipt of goods; or
  2. date of payment as per books of account or date of deb-it in bank account, whichever is earlier; or
  3. the date immediately following thirty days from the date of issue of invoice or similar otherdocument.

In case of supply of services, time of supply is earliest of –

  1. date of payment as per books of account or date of deb-it in bank account, whichever is earlier; or
  2. the date immediately following sixty days from thedate of issue of invoice or similar other document. Where it is not possible to determine time of supply using above methods, time of supply would be date of entry in the books of account of the recipient.

Compliances in respect of supplies under reverse charge mechanism:

  1. As per section 31 of the CGST Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to mention whether the tax in respect of supply in the invoice is payable on reverse charge. Similarly, this also needs to be mentioned in receipt voucher as well as refund voucher, if tax is payable on reverse charge.
  2. Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge
  3. Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.
  4. Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1.
  5. Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis.

Supplies of goods under reverse charge mechanism:

S/ Description of Supplier of Recipient of
No. supply of Goods goods Goods
1 Cashew nuts, not Agriculturist Any regis-
shelled or peeled tered person
2 Bidi wrapper Agriculturist Any regis-
leaves (tendu) tered person
3 Tobacco leaves Agriculturist Any regis-
tered person
4 Silk yarn Any person Any regis-
who manufac- tered person
tures silk yarn
from raw silk
or silk worm
cocoons for
supply of silk
yarn
4A Raw cotton Agriculturist Any regis-
tered person.
5 Supply of lottery State Govern- Lottery dis-
ment, Union tributor or
Territory or selling agent
any local au-
thority
6 Used vehicles, Central Gov- Any regis-
seized and confis- ernment, tered person
cated goods,  old State Govern-
and used  goods,
waste and scrap ment, Union
territory or a
local authority

Supplies of services under reverse charge mechanism:

S/ Description Supplier of Recipient of
No. of supply of service service
Service
Any service Any person Any person
supplied by any located in a located in
person who non-taxable the taxable
is located in territory other
territory
a non-taxable than non-
territory to any taxable online
person other recipient.
than non-
taxable online
recipient.
2 GTA Services Goods Any factory,
Transport society, co-
Agency (GTA) operative
who has not society,
paid integrated registered
tax at the rate person, body
of 12% corporate,
partnership
firm, casual
taxable person;
located in
the taxable
territory
3 Legal Services An individual Any business
by advocate advocate entity located
including a in the taxable
senior advocate territory
or firm of
advocates
4 Services An arbitral Any business
supplied by an tribunal entity located
arbitral tribunal in the taxable
to a business territory
entity
5 Services Any person Any body
provided by way corporate or
of sponsorship partnership
to any body firm located
corporate or in the taxable
partnership territory
firm
6 Services Central Any business
supplied by Government, entity located
the Central State in the taxable
Government, Government, territory
State Union territory
Government, or local
Union territory authority
or local
authority to a
business entity
excluding, –

  1. renting of immovable property, and
  2. services specified below-

(i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority;

  1. services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
  1. transport

of goods or passengers.

7 Services A director of a The company
supplied by a company or a or a body
director of a body corporate corporate
company or a located in
body corporate the taxable
to the said territory
company or the
body corporate
8 Services An insurance Any person
supplied by agent carrying on
an insurance insurance
agent to any business,
person carrying located in
on insurance the taxable
business territory
9 Services A recovery A banking
supplied by a agent company or
recovery agent a financial
to a banking institution or
company or a non-banking
a financial financial
institution or company,
a non-banking located in
financial the taxable
company territory
10 Services A person Importer, as
supplied by a located in defined in
person located non-taxable clause (26) of
in non- taxable territory section 2 of
territory the Customs
by way of Act, 1962(52
transportation of 1962),
of goods by a located in
vessel from a the taxable
place outside territory
India up to the
customs station
of clearance in
India
11 Supply of Author Publisher,
services by an or music music
author, music composer, company,
composer, photograph producer
photographer, her, artist, or or the like,
artist or the the like located in
like by way the taxable
of transfer or territory
permitting
the use or
enjoyment of
a copyright
covered under
section 13(1)

(a) of the
Copyright Act,
1957 relating to
original literary,
dramatic,
musical or
artistic works
to a publisher,
music company,
producer or the
like
12 Supply of Members of Reserve Bank
services by the Overseeing of
members of Committee India.
Overseeing
constituted by
Committee to
the Reserve
Reserve Bank
Bank of India
of India
******

 

Works Contract in GST

Introduction:

What is a works contract?
Simply put, a works contract is essentially a contract of service which may also involve supply of goods in the execution of the contract. It is basically a composite supply of both services and goods, with the service element being dominant in the contract between parties.

In a general sense, a contract of works, may relate to both immovable and immovable property. E.g. if a sub-contractor, undertakes a sub-contract for the building work, it would be a works contract in relation to immovable property. Similarly, if a composite supply in relation to movable property such as fabrication/painting/annual maintenance contracts etc. is undertaken, the same would come within the ambit of the broad definition of a works contract.

Works Contract – the position in VAT & Service Tax

A works contract has elements of both provision of services and sale of goods, and was therefore taxable under both laws.

VAT

In the case of Gannon Dunkerly, the Hon’ble Apex Court had held that in case of a works contract, the dominant intention of the contract is the execution of works, which is a service and there is no element of sale of goods (as per Sale of Goods Act). The contract being one indivisible contract, it cannot be broken up to levy VAT on sale of goods involved in the execution of works contract. This decision led the Government to amend the Constitution of India and insert Article 366(29A) (b) which enabled the State Governments to levy tax (VAT) on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.

SERVICE TAX

Works contract has been defined in section 65B of the Finance Act, 1994 as a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immoveable property or for carrying out any other similar activity or a part thereof in relation to such property.

By virtue of Section 66E of Finance Act, 1994, the service portion involved in the execution of works contract was a declared service. Hence Service Tax could be levied only on the service element of the works contract. The principles of segregation of the value of goods were provided in Rule 2A of the Service Tax (Determination of Value) Rules, 2006.

Position under GST

Under GST laws, the definition of “Works Contract” has been restricted to any work undertaken for an “Immovable Property” unlike the existing VAT and Service Tax provisions where works contracts for movable properties were also considered.

The Works Contracts has been defined in Section 2(119) of the CGST Act, 2017 as

works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.”

Thus, from the above it can be seen that the term works contract has been restricted to contract for building construction, fabrication etc of any immovable property only. Any such composite supply undertaken on goods say for example a fabrication or paint job done in automotive body shop will not fall within the definition of term works contract per se under GST. Such contracts would continue to remain composite supplies, but will not be treated as a Works Contract for the purposes of GST.

As per Para 6 (a) of Schedule II to the CGST Act, 2017, works contracts as defined in section 2(119) of the CGST Act, 2017 shall be treated as a supply of services. Thus, there is a clear demarcation of a works contract as a supply of service under GST.

As per section 17(5) (c) of the CGST Act, 2017, input tax credit shall not be available in respect of the works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.

Thus, ITC for works contract can be availed only by one who is in the same line of business and is using such services received for further supply of works contract service. For example a building developer may engage services of a sub-contractor for certain portion of the whole work. The sub-contractor will charge GST in the tax invoice raised on the main contractor. The main contractor will be entitled to take ITC on the tax invoice raised by his sub-contractor as his output is works contract service. However if the main contractor provides works contract service (other than for plant and machinery) to a company say in the IT business, the ITC of GST paid on the invoice raised by the works contractor will not be available to the IT Company.

Plant and Machinery in certain cases when affixed permanently to the earth would constitute immovable property. When a works contract is for the construction of plant and machinery, the ITC of the tax paid to the works contractor would be available to the recipient, whatever is the business of the recipient. This is because works contract in respect of plant and machinery comes within the exclusion clause of the negative list and ITC would be available when used in the course or furtherance of business.

Maintenance of records:

As per Rule 56 (14) of the CGST Rules, 2017, every registered person executing works contract shall keep separate accounts for works contract showing – (a) the names and addresses of the persons on whose behalf the works contract is executed; (b) description, value and quantity (wherever applicable) of goods or services received for the execution of works contract; (c) description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract; (d) the details of payment received in respect of each works contract; and

  • the names and addresses of suppliers from whom he received goods or services.

Rate of GST

The rate of GST for Works Contract service has been prescribed in serial number 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017 & notification no.24/2017-Central Tax (Rate) dated 21.09.2017 and is as under:

      i.        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 after its first occupation, whichever is earlier. (Provisions of paragraph 2 of this notification shall apply for valuation of this service)

9% CGST + 9% SGST
     ii.        composite supply of works contract

as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017

9% CGST + 9% SGST
    iii.        Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, –

(a) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments

and Archaeological Sites and Remains Act, 1958 (24 of 1958);

(b) canal, dam or other irrigation

works;

(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal

6% CGST + 6% SGST
   iv.        Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-

(a) a road, bridge, tunnel, or

terminal for road transportation

for use by general public;

(b) a civil structure or any other

original works pertaining to a

scheme under Jawaharlal Nehru

National Urban Renewal Mission

or Rajiv Awaas Yojana;

(c) a civil structure or any other original works pertaining to the “In-situ rehabilitation of existing slum dwellers using land

as a resource through private participation” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers;

(d) a civil structure or any other original works pertaining to the “Beneficiary led individual house construction / enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas

Yojana;

(e) a pollution control or effluent treatment plant, except located as a part of a factory; or

(f) a structure meant for funeral, burial or cremation of deceased

6% CGST + 6% SGST
    v.        Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, supplied by way of construction, erection, commissioning, or installation of original works pertaining to,-

(a) railways, excluding monorail

and metro;

(b) a single residential unit otherwise than as a part of a residential complex;

(c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered

under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(d) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under-

(1) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana; (2)

any housing scheme of a State Government;

(e) post-harvest storage infrastructure for agricultural produce including a cold storage

for such purposes; or

(f) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding

alcoholic beverages

6% CGST + 6% SGST
   vi.        Services provided to the Central

Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection,

commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or

(c) a residential complex predominantly meant for self-use or the use of their

employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.

6% CGST + 6% SGST
  vii.        Construction services other than

(i), (ii), (iii), (iv), (v) & (vi) above

9% CGST + 9% SGST

Valuation

Valuation of a works contract service is dependent upon whether the contract includes transfer of property in land as a part of the works contract.

In case of supply of service, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.

Explanation. – For the above purpose, “total amount” means the sum total of,-consideration charged for aforesaid service; and

  • amount charged for transfer of land or undivided share of land, as the case may be

Place of Supply in respect of Works Contract

Works Contract under GST would necessarily involve immovable property. In view of the same the place of supply would be governed by Section 12(3) of the IGST Act, 2017, where both the supplier and recipient are located in India. The place of supply would be where the immovable property is located.

In case the immovable property is located outside India, and the supplier as well as recipient both are located in India, the place of supply would be the location of recipient as per proviso to Section 12(3) of the IGST Act, 2017.

As per Section 13(4) of the IGST Act, 2017, in cases where either the Supplier or the Recipient are located outside India, the place of supply shall be the place where the immovable property is located or intended to be located.

Conclusion

A works contract is treated as supply of services under GST. Under the previous indirect taxes dispensation, there were issues in tax treatment of works contract. Both the Central Government (on the services component of a works contract) & the State Governments (on the sale of goods portion involved in the execution of a works contract) used to levy tax. Thus the same contract was subject to taxation by both Central and State Government. GST aims to put at rest the controversy by defining what will constitute a works contract (applicable for immovable property only), by stating that a works contract will constitute a supply of service and specifying a uniform rate of tax applicable on same value across India. Thus, under GST, taxation of works contract will be simpler and easier to administer.

 

Valuation in GST

Value of Supply

Every fiscal statue makes provision for determination of value as tax is normally payable on ad-valorem basis. In GST also, tax is payable on ad-valorem basis i.e. percentage of value of the supply of goods or services. Section 15 of the CGST Act and Rule 27 to Rule 35 of CGST Rules, 2017 ( Chapter IV – Determination of Value of Supply), contain-provisions related to valuation of supply of goods or services made in different circumstances and to different persons.

Transaction Value

Under GST law, taxable value is the transaction value i.e. price actually paid or payable, provided the supplier & the recipient are not related and price is the sole consideration. In most of the cases of regular normal trade, invoice value will be the taxable value. However, to determine value of certain specific transactions, Determination of Value of Supply rules have been prescribed in CGST Rules, 2017.

Compulsory Inclusions

Any taxes, fees, charges levied under any law other than commission & packing incurred by the supplier, interest or late fees or penalty for delayed payment and direct subsidies (except government subsidies) are required to be added to the price (if not already added) to arrive at the taxable value.

Exclusion of discounts

Discounts like trade discount, quantity discount etc. are part of the normal trade and commerce, therefore pre-supply discounts i.e. discounts recorded in the invoice have been allowed to be excluded while determining the taxable value.

Discounts provided after the supply can also be excluded while determining the taxable value provided two conditions are met, namely – (a) discount is established in terms of a pre supply agreement between the supplier & the recipient and such discount is linked to relevant invoices and (b) input tax

credit attributable to the discounts is reversed by the recipient.

Taxable value when consideration is not solely in money

In some cases, where consideration for a supply is not solely in money, taxable value has to be determined as – prescribed in the rules. In such cases following values have to be taken sequentially to determine the taxable value: –

  1. Open Market Value of such supply.
  2. Total money value of the supply i.e. monetary con-sideration plus money value of the non-monetary consideration.
  3. Value of supply of like kind and quality.
  4. Value of supply based on cost i.e. cost of supply plus 10% mark-up.
  • Value of supply determined by using reasonable means consistent with principles & general provi-sions of GST law. (Best Judgement method)

Open Market Value means the full value in money excluding taxes under GST laws, payable by a person to obtain such supply at the time when supply being valued is made, provided such supply is between unrelated persons and price is the sole consideration for such supply.

Supply of like kind & quality means any other supply made under similar circumstances that is same or closely resembles in respect of characteristics, quality, quantity, functionality, reputation to the supply being valued.

Illustration:

  • Where a new phone is supplied for Rs. 20000/- along with the exchange of an old phone and if the price of the new phone without exchange is Rs.24000/-, the open market value of the new phone is Rs 24000/-.
  • Where a laptop is supplied for Rs. 40000/- along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs. 4000/- but the open market value of the laptop is not known, the value of the supply of laptop is Rs. 44000/-.

Value of supply between distinct and related persons (excluding Agents).

A person who is under influence of another person is called a related person like members of the same family or subsidiaries of a group company etc. Under GST law various categories of related persons have been specified and as relation may influence the price between two related persons therefore special valuation rule has been framed to arrive at the taxable value of transactions between related persons. In such cases following values have to be taken sequentially to determine the taxable value: –

  1. Open Market Value
  1. Value of supply of like kind and quality.
  • Value of supply based on cost i.e. cost of supply plus 10% mark-up.
  1. Value of supply determined by using reasonable means consistent with principles & general provi-sions of GST law. (Best Judgement method)

However if the recipient is eligible for full input tax credit, the invoice value will be deemed to be the open market value. It has also been provided that where the goods being supplied are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his unrelated customer.

Value of supply of goods made or received through an agent

  1. Open market value of goods being supplied, or, at the option of the supplier, 90% of the price charged for the supply of goods of like kind and quality by the recipient o his unrelated customer.

Illustration:

   Where a principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of Rs. 5000/- per quintal on the day of supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of Rs. 4550/- per quintal. The value of the supply made by the principal shall be Rs. 4550/- per quintal or where he exercises the option the value shall be 90% of the Rs. 5000/- i.e. is Rs. 4500/- per quintal.

  1. In case value cannot be determined under (a) then fol-lowing values have to be taken sequentially to deter-mine the taxable value: –

  1. Value of supply based on cost i.e. cost of supply plus 10% mark-up.
  2. Value of supply determined by using reasonable means consistent with principles & general provisions of GST law. (Best Judgement method)

Value of supply of services in case of a Pure Agent Subject to fulfilment of certain conditions, the expenditure and costs incurred by the supplier as a pure agent of the recipient of supply of service has to be excluded from the value of supply.

Illustration

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.

Determination of value in respect of few specific supplies

Methods to determine Taxable value of following five specific supplies have also been prescribed under valuation Rules. These can be used by the supplier if he so desires.

  1. Purchase or sale of foreign currency including money changing
  2. Booking of tickets fr air travel by an air travel agent
  3. Life insurance business
  4. Value of supply of Second hand goods
  5. Value of redeemable vouchers/Stamps/Coupons/to-kens

The special provisions related to determination of these supplies are as below: –

Special provision related to determination of value of service of purchase or sale of foreign currency including money changing

Option-1

Case 1: Transaction where one of the currencies exchanged is Indian Rupees

Taxable value is difference between buying rate or selling rate of currency and RBI reference rate for that currency at the time of exchange multiplied by total units of foreign currency. However if RBI reference rate for a currency is not available then taxable value is 1% of the gross amount of Indian Rupees provided/received by the person changing the money.

Case 2: Transaction where neither of the currencies exchanged is Indian Rupees

Taxable value will be 1% of the lesser of the two amounts the person changing the money would have received by converting (at RBI reference rate) any of the two currencies in Indian Rupees.

Option-2The person supplying the service may also exercise the following option to ascertain the taxable value, however once opted then he cannot withdraw the during the remaining part of the financial year: –

  • One percent of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to minimum amount of two hundred and fifty rupees.
  • One thousand rupees and half of a percent of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees.
  • Five thousand rupees and one tenth of a percent of the gross amount of currency exchanged for an amount exceeding ten lakhs rupees subject to a maximum amount of sixty thousand rupees.

Special provision related to determination of value of service of booking of tickets for air travel by an air travel agent

Taxable value is 5% of basic fare in case of domestic travel and 10% of basic fare in case of international travel. Basic fare means that part of the air fare on which commission is normally paid to the air travel agent by the airline.

The expression ‘basic fare’ means that part of the air fare on which commission is normally paid to the air travel agent by the airlines.

Special provision related to determination of value of service in relation to life insurance business

Taxable value varies with nature of insurance policy. The details are as follows:-

  • Where policy has dual benefits of risk coverage and investment – Taxable value is gross premium charged less amount allocated for investments or savings if such allocation is intimated to the policy holder at the time of collection of premium.
  • Single premium annuity policy where allocation for investments and savings is not intimated to the policy holder – taxable value is ten percent of the single premium charged from the policy holder.
  • Other cases- Twenty five percent of premium charged from the policy holder in te first year and twelve and a half percent of premium charged for subsequent years.

However, where insurance policy has benefit of risk coverage only, then taxable value is entire premium charged from the policy holder.

Special provision related to determination of value of second hand goods

The taxable value of supply of second hand goods i.e. used goods as such or after such minor processing which does not change the nature of goods shall be the difference between the purchase price and the selling price, provided no input tax credit has been availed on purchase of such goods. However, if the selling price is less than purchase price, that negative value will be ignored.

Persons who purchase second hand goods after payment of tax to supplier of such goods will be governed by this valuation rule only when they do not avail input tax credit on such input supply. If input tax credit is availed, then such supply will be governed by normal GST valuation.

Value of supply of goods repossessed from a defaulting borrower.

If the defaulting borrower is not a registered person, the purchase value will be purchase price in the hands of such borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and date of disposal by the person making such repossession.

However, if the defaulting borrower is registered, the repossessing lender agency will discharge GST at the supply value without any reduction from actual/notional purchase value.

Special provisions related to determination of value of redeemable vouchers/stamps/coupons/tokens

The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.

Value of taxable services provided by a notified class of service providers as referred to in para 2 of schedule 1 between the distinct persons

The taxable value is deemed to be Nil wherever input tax credit is available.

Valuation of certain works contract services

  • 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 after its first occupation, whichever is earlier.

In case of supply of service mentioned above, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.

“Total amount” means the sum total of,-

  1. consideration charged for aforesaid service; and
  2. amount charged for transfer of land or undivided share of land, as the case may be.

Valuation in the case of supply of lottery

Value of supply of lottery shall be 100/112 of the face value or the price notified in the Official Gazette by the organising State, whichever is higher, in case of lottery run by State Government and 100/128 of the face value or the price notified in the Official Gazette by the organising State, whichever is higher, in case of lottery authorised by State Government.

Rate of exchange of currency, other than Indian rupees, for determination of value

The rate of exchange for determination of value of taxable goods or services or both shall be the applicable RBI reference rate for that currency on the date of time of supply as determined in terms of section 12 or section 13 of the CGST Act.

Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax

Where the value of supply is inclusive of GST, the tax amount shall be determined in the following manner,

Tax amount= (Value inclusive of taxes X GST tax rate in % )/(100+ sum of GST tax rates in %)

For example –

If the value inclusive of tax is Rs. 100/- and applicable GST tax rate is 18% then

Tax amount = (100×18)/ (100+18) = 1800/118=Rs. 15.25