I. Overview of GST
GST in India is proposed to be implemented as a consumption type dual GST and will be levied on the value added at each stage. It will be a destination based tax following the invoice method for credit mechanism as it seeks to consolidate many and different taxes and taxing statutes at the Central and the State level into a single, uniform, comprehensive and simple tax structure. It is expected that the flow of input credits for all participants in the supply chain (manufacturers, traders, contractors, retailers, service providers, consignment agents, et al) would be seamless and that it would reduce the cascading effect on taxes by doing away with the archaic and plethora of taxes in the supply chain, in the current regime.
The GST Council has been set up and the effective date for the amendments contained in the Constitutional Amendment Act is notified as 16.09.2016. Subsequent to the Model GST law published on 14.06.2016, a revised Model law is published on 26.11.2016 and the Central Government has also released a part of the draft rules, forms and returns with a view to elicit comments from the trade and industry. The consolidated Draft GST Rules, 2016 including forms are expected to be released during the early week of January 2017.
II. GST on each nature of transaction:
Comparison between the current law and GST law for inward and outward supplies:
|Inwards supplies||Current law implication||GST law implication|
|Intra-State||Excise Duty, VAT and Entry Tax||SGST and CGST|
|Inter-State||Excise Duty, CST and Entry Tax||IGST|
|Imports||BCD, CVD, SAD and Entry Tax||BCD and IGST|
|Stock transfer inward||No tax, declaration in Form F to be issued to supplying branch||Considered as supply of goods and supplier will charge GST on that. Receiving branch can avail Credit.|
|Job work||No duty (Subject to certain conditions)||No tax (Subject to certain conditions)|
|Sales return||Reversal of output tax to that extent||Considered as supply of goods and supplier will charge GST on that. Receiver of goods can avail Credit.|
|Input services||Service Tax paid on input services can either be adjusted against service tax liability or excise duty. However, the same cannot be adjusted against VAT / CST.||Eligible to be claimed as Credit|
|Purchases from EOU||Excise Duty, VAT/ CST and Entry Tax||SGST and CGST|
|Purchases from SEZ||Excise Duty, VAT / CST and Entry Tax||SGST and CGST|
|Local Sales||VAT and Excise Duty||SGST and CGST|
|Inter-State sales||CST and Excise Duty||IGST|
|Stock transfer||Nil||Considered as supply of goods and liable to GST|
|Purchase return||Reversal of input tax to that extent||Purchase return will be considered as supply of goods and service and liable to GST|
|Sample||Nil||Liable to GST|
|Testing||Nil||Liable to GST|
|Warranty Supplies||Excise Duty||Liable to GST|
|Output services||Liable to Service Tax||Liable to GST|
|Sales to EOU||If the purchaser issues Form H, Nil tax||Liable to GST|
|Sales to SEZ||If the purchaser issues Form H, Nil tax||Liable to GST|
III. Transactions becoming taxable for the first time:
Under the GST regime, every ‘supply’will be liable to tax. The word ‘supply’ is all-encompassing subject to certain exceptions carved out. It is pertinent to note that the law has provided an inclusive meaning to the word ‘supply’ and therefore, the scope of the term ‘supply’ is very vast covering transactions that were hitherto not liable under the existing State and Central laws.
The taxable event under GST regime will be ‘supply’ of goods and/or services and events like sale, manufacture, provision of service will no longer be relevant to determine levy of tax.
The definition of supply comprises of two kinds of supplies – actual and implied. Actual supplies are those that are made for consideration by a person in furtherance of business and among other things require two persons to constitute such a supply. But implied supplies are those that are listed in schedule 1 to the CGST Act and are treated as supply even in the absence of consideration. Para 5 to schedule I reads as “supply of goods and services by a taxable person to another taxable person or non-taxable person in the course of or furtherance of business”. In such a scenario, the following transactions will be liable to GST even without consideration:
- Stock transfer - Supply of goods between branches or locations (across states), albeit of the same person, being implied supplies would be liable to tax.
- Samples–Goods provided as samples in the course of business will be liable to tax henceforth
- Warranty supplies – Supply of goods under warranty would be covered under the term ‘supply’
- Testing – Goods sent for testing would be regarded as ‘supply’ and liable to tax
IV. Reverse Charge Mechanism:
Normally, the supplier of goods and / or services will be liable to discharge tax on the supplies effected. However, the Central / State Government is, upon recommendation of the GST council, empowered to specify the categories of supplies in respect of which the recipient of goods and / or services will be liable to discharge the tax.
In such a scenario, all other provisions would apply to the recipient of such goods and / or services, as if the recipient is the supplier of such goods and / or service. Therefore, for the limited purpose of such transactions, the recipient would be deemed to be the “Supplier”.
The category of supplies in respect of which the recipient will be liable to discharge the tax are yet to be notified. However, transactions expected to be covered under reverse charge mechanism are:
- Services provided by Government or a local authority to a business entity
- Purchase of goods from un-registered dealers
V. GST on Imports:
Supply of goods and / services in the course of import into the territory of India will be regarded as deemed supply of goods and / service in the course of inter-State trade commerce.
In the current scenario, imports are subject to basic customs duty (BCD), countervailing duty (CVD), customs cess and special additional duty (SAD). Under the GST regime, imports would be subject to basic customs duty (BCD) and IGST.
VI. Changes in valuation mechanism:
The taxable value of supply of goods and serviceswould be the Transaction Value. Transaction Value has not been defined under the model GST law; however, it provides that Transaction Value is the “price” actually paid or payable in monetary terms. Transaction Value would be considered as the value of supply if the following conditions are satisfied:
- The transaction of supply of goods and / or services have a price;
- The transaction is between persons who are not related; and
- Price is the sole consideration
Comparison between the current law and GST law as follows:
|Laws||Valuation under current law||GST law|
|Customs law||Goods are valued at transaction value. The determination of transaction value is undertaken based on the time and place of importation of goods by the importer||Supplies to be valued at transaction value’. In case of related party transactions, ‘transaction value’ will be accepted only if the relationship does not influence the price.|
|Central Excise law||Goods are valued at transaction value. The determination of transaction value is undertaken based on the time and place of removal of goods.|
|Service Tax law||Service Tax is payable on gross amount charged to service provider.|
|VAT / CST||There is no concept of valuation.|
VII. Migration of Registration
The Companies currently registered under the Central Excise, Service Tax, Value Added Tax and Central Sales Tax laws are required to migrate their current registration into GST. Under the proposed GST regime, a certificate of registration would be issued automatically on a provisional basis for the registered premises of the Company. This certificate of registration will be valid for a period of six months from the date of issue.
The issue of provisional certificate would be subject to the following conditions:
- Every such person will be required to furnish certain information (will be prescribed).
- After filing of such information, a final certificate would be issued by the Central / State Government.
- Where no information is filed within a period of six months, the certificate issued on provisional basis will also be cancelled.
VIII. ITC allowed as transitional credits:
- All input credits claimed under the earlier laws (current) but remaining unutilised as on the date of implementation of GST:
- Credits claimed under Central Excise, Service Tax, Value Added Tax, Customs (CVD and SAD), Krishi Kalyan Cess, Educational Cess, Secondary Higher Educational Cess on inputs, capital goods, consumables, services etc.
- Taxes / Duties paid on capital goods but remaining un-availed under the existing laws:
Un-availed portion of Central Excise duty in respect of capital goods will also be eligible to be claimed subject to certain conditions (no clarity on Capital Goods lying at Job Worker’s premises). For instance, under Central Excise laws, 50% of the credit is allowed to be claimed in the month of receipt of goods and the balance 50% in any of the subsequent financial years.
- Duties and Taxes paid on various goods which are held in stock (RM, PM, SFG, FG etc.,) as on the date of implementation of GST though not claimed in the returns.
Will be allowed only in certain specific conditions - if the said goods or finished goods were exempt under the current law but are taxable under GST or if the person was not registered under the current law.
- Credits claimed by an ISD but which are not distributed up to the date of implementation of GST (closing balance of credits with the ISD, pending distribution)
- Taxes paid on inputs and capital goods which are lying at the premises of an agent- the agent will be eligible to claim the credit of such taxes
Summary of eligible transitional credits:
- Central Excise on inputs;
- Service Tax on input services including RCM;
- Krishi Kalyan Cess (KKC);
- Countervailing duty (CVD);
- Special additional duty (SAD); and
- Value Added Tax (VAT)- Inputs including URD
- Educational Cess, Secondary Higher Educational Cess
Following conditions are to be fulfilled to avail the transitional credits:
- Should be claimed in the relevant returns under the current (existing) laws;
- Should remain unutilised as on the date of implementation of GST;
- Amounts carried forward are unutilised credits in the returns should match with the books of account;
- Disputed amounts and additional claims reflected through revised returns – only refund mechanism available and no transitional credits will be allowed in such cases
IX. ITC which would not be allowed as transitional credits:
- If such goods do not qualify as ‘inputs’ or ‘capital goods’, either under the current tax law or the GST law (eg: office equipment, stationery items, housekeeping items etc.);
- If such amounts are not eligible as input credits, either under the current tax law or the GST law (eg: Swachh Bharath Cess, Central Sales Tax, Krishi Kalyan Cess for manufacturers);
- If the said amounts are not reflected in the return filed for the last period under the current tax laws;
- If the relevant invoices as prescribed under the current tax law are not available;
- If the relevant credits are in dispute under the current tax law (assessment, reference, revision or appeal etc.);
- If the relevant goods or services are exempt under the GST law;
- If composition scheme is opted for, under the GST law.
X. Transitional Compliance
A Certificate from the Chartered Accountant regarding the unutilised credits as on 31.03 as per the return filed for the period ending, immediately preceding the date of implementation of GST may be filed along with the detailed statement of inventory held as on 31.03. While obtaining a certificate, following details should be furnished:
- Reconciliation of unutilised credit between books and returns filed;
- Invoice wise detailsof the unutilised credit must be uploaded in the electronic credit ledger as opening balance.
In case of capital goods, un-availed CENVAT Credit and Input tax credit are entitled to be carried forward even though they were not reflected in the return filed for the period ending, immediately preceding the date of implementation of GST. This may be declared while obtaining a certificate from the Chartered Accountant.
XI. Impact on Assessment and appeals under the current laws:
Pending refund claims:
Refund will be granted in terms of the provisions of the earlier law for the claims made prior to the enactment of GST law. However, if the claim is rejected either in full or part, such rejected amount will lapse.
Claims for CENVAT Credit and Input Tax Credit:
Any proceeding under the earlier law will be disposed of in terms of the provisions of the earlier law. In case of favourable decision, claimant can avail the same as refund in cash and not admissible as input tax credit under the GST law.
Proceeding - Output Liability:
Any proceeding pending relating to any output liability, shall be disposed ofas per the earlier law. Further, in case of decision against the claimant, the same should be paid in cash and cannot be adjusted against the input tax credit under the GST law.
Key decision points:
This would be based one each company / entity specific. Before examining this need to analyse each activities of the business to have a look on impact of GST. The following would be critical for decision making are:
1. Inventory to be held as on 31st March
2. Revisit long term contract
3. Impact on Working Capital
4. Impact on Pricing
5. ERP changes
6. Others, if any
Payment of tax interest, penalty, etc., can be made through internet banking or by debit/credit card or by any other mode. Such payment will get credited to Electronic cash ledger of the Company.
Input tax credit declared in the return filed by theCompany will get credited to the Company’s Electronic Credit Ledger only after matching the same with the corresponding declaration furnished by the supplier in his return.
The following types of returns are to be filed under the GST regime:
|GSTR 1||Outward supplies made by taxpayer (i.e. Sales)||10 th of next month|
|GSTR 2||Inward supplies received by a taxpayer (i.e. Purchase)||15 th of next month|
|GSTR 3||Monthly Return||20 th of next month|
|GSTR6||Return for Input service distributer||13 th of next month|
|GSTR 8||Annual Return||31 st December of next financial year|