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GST updates: Notification 10/2019 Central Tax dated 07.03.2019

Notification 10/2019 dated 07.03.2019 exempts any person engaged exclusively in supply of goods from taking registration if his aggregate turnover in that financial year less than Rs.40 lakhs. However the provisions of this notification shall not apply on

  • Person liable for compulsory registration.
  • Person making supply of
Sl. No. Tariff Heading Particulars
1 2105 00 00 Ice Cream, Edible ice
2 2106 90 20 Pan Masala
3 24 All goods i.e. Tobacco and manufactured tobacco products

 

  • Person making intra state supplies in the state of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Pudducherry, Sikkim, Telangana, Tripura and Uttarakhand.
  • Person exercising option of registration under section 25(3) of the CGST Act, 2017 (voluntary registration discussed below) or such persons who want to continue their registration under this Act.

The provisions of this notification is effective from 01.04.2019.

If you want to read about the criteria of registration in GST follow this link.

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Registration: Let us get registered in GST (Goods and Service Tax)

The heading is itself self explanatory. This post is all about getting registered for Goods and Services Tax payment. As you proceed further you will learn who should get registered and what laws are applicable.

Topics:

  1. Who are liable to take registration? (Section 22 of Central Goods and Service Tax, 2017)
  2. Who need not get registered in Goods and Service Tax?
  3. Compulsory registration
  4. Procedure for registration
  5. Distinct Person concept:
  6. Voluntary registration:
  7. Deemed Registration:
  8. Cancellation of registration:
  9. Input Tax Credit reversal on cancellation of registration
  10. Status of liability on cancellation of registration
  11. Revocation of application
  12. Conclusion:

 

1. Who are liable to take registration? (Section 22 of Central Goods and Service Tax, 2017)

Who should take registration? We have discussed it in the below mentioned points

  1. All the supplier having annual turnover more than Rs. 20 lakhs get registered in the Goods and Service Tax Act. This limit of Rs. 20 lakhs is not applicable for special category states. They get registered if they reach an annual turnover of Rs. 10 lakhs. Government has powers to change this limit for special category states if any one such state requests the government for the same. However the government may not peg this cut off above Rs. 20 lakhs which is presently the requirement for non special category states.

If you are wondering who are the special category states let you go through the below mentioned list of such states.

  • Arunachal Pradesh
  • Uttarakhand
  • Nagaland
  • Assam
  • Meghalaya
  • Mizoram
  • Himachal Pradesh
  • Sikkim
  • Tripura
  • Manipur
  • Jammu and Kashmir
  1. A person already registered in the previous act –Excise, Service Tax, Vat etc.- should get himself registered in the Goods and Service Tax Act unless he has discontinued his business.
  2. A person transfers his already registered business in GST regime to another person either due to death of the business owner or for any other reason. In such a scenario the new business holder or the transferee shall get the business registered in Good and Service Tax Act.
  3. A business often gets transferred by means of merger, acquisition, amalgamation or order of court/ tribunal. Here too the transferee should get his business registered under Goods and Service Tax Act.

Notification 10/2019 Central Tax dated 07.03.2019 exempts any person engaged exclusively in supply of goods from taking registration if his aggregate turnover in that financial year less than Rs.40 lakhs. However the provisions of this notification shall not apply on

  • Person liable for compulsory registration (discussed in section below).
  • Person making supply of
Sl. No. Tariff Heading Particulars
1 2105 00 00 Ice Cream, Edible ice
2 2106 90 20 Pan Masala
3 24 All goods i.e. Tobacco and manufactured tobacco products

 

  • Person making intra state supplies in the state of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Pudducherry, Sikkim, Telangana, Tripura and Uttarakhand.
  • Person exercising option of registration under section 25(3) of the CGST Act, 2017 (voluntary registration discussed below) or such persons who want to continue their registration under this Act.

2. Who need not get registered in Goods and Service Tax ?

In the previous section you have learnt who should get registered. Now it is time to know who are not liable for any registration in GST. Section 23 of Goods and Service Tax, 2017 is the reference for this list mentioned below.

  1. Any person supplying exempted goods and services need not take registration under GST. The only condition being the goods or services supplied by such person should be wholly exempted and not partially exempted.
  2. The government felt it necessary to keep this set of people in our society out of the tax ambit. They are the agriculturist. The agriculturist is exempted from taking registration under GST but only to the extent of their agricultural supply.

If the last sentence seems a bit unclear let us clear it with an example

Suppose an agriculturist is supplying Rs. 15 lakhs worth of agricultural produce in a financial year. At the same time, he is also engaged in supplying Rs. 10 lakhs worth of iron bar in the same financial year. He may argue that his turnover of taxable iron bar supply is less than Rs. 20 lakhs which is the prescribed limit for taking registration. However the law looks at the total turnover rather than considering your taxable turnover. So is the turnover to be considered is Rs. 25 lakhs (15+10)? Yes, now you get it right. He has to get registered under the Act as the turnover is more than Rs. 20 lakhs (which is Rs. 25 lakhs).

  1. The government has power to exempt any person from obtaining registration but only on the recommendation of the Goods and Service Tax Council.

 

3. Compulsory registration

There is also a category of suppliers who has to get registered in Goods and Service Tax Act even if their total turnover in any financial year is below the prescribed cut off of Rs. 20 lakhs. They are the persons liable for compulsory registration. Check out who are they

  1. Persons making interstate taxable supply.
  2. Casual taxable person doing taxable supply. Casual taxable persons are those persons who do not have a fixed place of business and occasionally make any supply. He may be principal supplier or an agent. There is a whole new post dedicated to casual taxable person which you may like to check out by following this link.
  3. A person who pays tax under reverse charge mechanism should get registered irrespective of his turnover in any financial year.
  4. Persons who are required to pay tax under section 9(5) of Central Goods and Service Tax Act, 2019 has to take compulsory registration. They are the e-commerce operators.
  5. Any non-resident taxable person making taxable supply.
  6. Any person who deduct tax at source under the provisions of Section 51 of Central Goods and Service Tax Act, 2017.
  7. Input Service Distributor has to take compulsory registration to distribute input tax credit.
  8. Person who supply goods or services through electronic commerce operators who are required to collect tax at source under section 52 of the Act.
  9. Every e-commerce operator who is required to collect tax at source under section 52 of the Central Goods and Service Tax Act, 2017(CGST, 2017).
  10. Person supplying online information and database access retrieval service from outside India to a person in India who is not registered.
  11. The last point is obvious. The Government has all the powers to specify from time to time any category of suppliers who are required to take compulsory registration.

 

4. Procedure for registration

Once you understand who are liable and who are not liable to take registration you should know the process of registration.

A person who is liable to be registered in Goods and Service Tax, 2017 shall apply for registration within 30 days from which he becomes liable for registration. Only casual taxable persons and non-resident taxable persons have to apply 5 days prior to the day when they make a taxable supply.

A person seeking registration gets a single registration in a particular state for all its units in that state. If he seeks multiple registration then unit concerned with each registration are treated as distinct from each other rather than part of the same business. We shall read about it in more details in the next section.

It is to be noted that if the same person is engaged in more than one line of business then he needs to take registration for each business separately.

The last thing is that the registrant requires to have a PAN (Permanent Account Number) issued by the Income Tax Authorities. After registration the persons gets a UIN (Unique Identification Number). The taxable supplier uses this UIN to pay his GST.

This post is meant to build your concept on registration. Hence we would not go in details of the forms and registration formats which will be the topic for another post.

 

5. Distinct Person concept:

There are two scenarios where this discussion is relevant

  1. A person has obtained multiple registrations in a single state. In the instant case the units pertaining to each registration would be treated as distinct persons. Example: In state of Madhya Pradesh Unit 1 for a person is registered under GST. If another Unit 2 in the same state of the same person is registered under a separate registration in GST, then both Unit 1 and Unit 2 are considered as belonging to two distinct persons. However if both the units are registered under the same GST registration then they would be treated as belonging to a single person.
  2. If a person has registered a unit in one registration and has another unit in a different state registered in separate registration then both the units shall be treated as distinct persons.

6. Voluntary registration:

Even if a person who is not liable for registration may seek for registration and get it under Goods and Service Tax Act, 2017. Such registrations are called voluntary registrations. A business usually asks for voluntary registration to pass on the input tax credit they have to their customers.

7. Deemed Registration:

  1. On application for registration the officer of the department examines the details in the application for registration. If the information furnished is deficit of any document or any details present in the application appears to be incorrect then the officer concerned may ask for further clarification. Query for such clarification shall be raised in 3 days of application for registration. If the officer concerned fails to do that the registration shall be deemed approve.
  2. If for any reason the application for registration is rejected then the registration shall be deemed rejected.

8. Cancellation of registration:

The registration may be cancelled by the department on their own motion or if the application for cancellation is submitted by the registered person. The reason for cancellation of registration could be as follows:

  1. The business has been discontinued, transferred fully, amalgamated with other legal entity, demerged or disposed off. In such situations the existing GST registration cannot continue and needs to be cancelled.
  2. If the constitution of the business has been changed then the old GST registration has to be cancelled.
  3. The taxable person who was previously registered under section 22 and section 24 (already discussed above) of the Act is no longer required to be registered. In such case he may apply for cancellation of registration.
  4. If the registered person under Goods and Service Tax has contravened any provision of the Act or any rules under GST then the department may cancel the registration.
  5. If a person paying tax has not furnished the GST returns for 3 consecutive tax periods or six months of registration, then his registration is liable to be cancelled.
  6. Any person who taken voluntary registration but has failed to commence his business within 6 months from the date of registration.
  7. Any registration obtained by fraud, willful misstatement or suppression of facts is liable to be cancelled by the department. However the department has to give a fair opportunity to the registered person to present his case before cancellation of his registration.

9. Input Tax Credit reversal on cancellation of registration

If the registration of a person is cancelled by any reason mentioned above, the person has to pay an amount by debit in his electronic credit ledger. This amount shall be equal to the input tax credit contained in inputs lying in stock, semi finished goods, finished goods and capitals goods related to such business. The credit on capital goods must be calculated by reducing the value of capital goods by such percentage points as may be attributed to its age.

 

10. Status of liability on cancellation of registration

The cancellation of registration shall not affect the liability of the person to pay tax dues pertaining to period before the cancellation. If any liability has arisen before cancellation he needs to settle the liability.

11. Revocation of application

If any officer cancels a registration by  on his own motion then the concerned person may approach the officer and present his case. If satisfied such officer may revoke the cancellation of registration.

12. Conclusion:

We have discussed registration  in this post. If you are a person carrying on any supply in the taxable territory you need to know whether a GST registration is required or not. Inability to comprehend the requirement of registration can easily land a taxable person in troubled waters. The best strategy is to understand the law and take registration accordingly. If you have any query, suggestions or additions to the topic feel free to comment.

You may also read about supply concept  in GST

You may like to read about GST Audit Form GSTR 9C

GST bare act pdf download

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Common mistakes about casual taxable person in GST corrected

Topics

  1. Definition of casual taxable persons
  2. Example 1
  3. Example 2
  4. Casual Taxable person vs IGST
  5. Another Example
  6. Procedure for registering as a casual taxable person
  7. Conclusion

1. Definition of casual taxable persons

Casual taxable persons are those persons who do not have a fixed place of business from where they supply goods and services. They are occasional suppliers and there nature of supply is not their regular feature of business.

Now you may be wondering what such supplies are and who are making them. Do not be too much anxious as at the end of the article you will have a complete understanding of what casual taxable persons are all about. Let us start our discussion with an example.

2. Example 1

A garment manufacturer in Rajasthan participated in a garment exhibition in Bangalore. In this exhibition he may sell his garments too. So with an intention to get some business he took out his best collections for the event and reached Bangalore. The thought of how he would pay the Goods and Service Tax on his supply (sale of garments) kept him occupied. Can you guess the solution? Yes, he has to take registration for a casual taxable person in Bangalore as he has no permanent place of business there.

This is a simple example to acquaint you with the concept. However as this is the most confused and misinformed topic in the internet space we would take more examples to get clarity.

3. Example 2

An IT consultancy registered in Bangalore got a big assignment from a client in Hyderabad. He usually provides his IT consultancy service from Bangalore but now he has to provide consultancy in Hyderabad which is a different state. Does he require to get registered as a casual taxable person in Hyderabad to render his service? If you are thinking the answer is yes, then you must have a closer look at the scenario. Many people think this to be a yes. Don’t worry this is the most common misconception and we intend to correct it.  The IT Company has already got its registration in Bangalore. It could simply provide his service in Hyderabad and pay taxes in IGST (Integrated Goods and Service Tax). For any inter-state supplies a person needs to pay IGST and should not get registered as casual taxable person. Here the service is qualified as inter-state. So registration as a casual taxable person is not required.

4. Casual Taxable person vs IGST

We have already dealt this topic in the previous example. There is a lot of confusion over when a person needs to pay IGST (Integrated Goods and Service Tax) and when he is required to get registered as a casual taxable person. Here the place from where the supply is made is important. If he makes supply from a place where he does not have a place of business but a temporary arrangement, he has to get registered as a casual taxable person. Whereas if he supplies is from a place where he is registered in the Goods and Service Tax Act, then he need not get another registration as casual taxable person. In this case where he is supplying to other state he can simply pay IGST (Integrated Goods and Service Tax) and render his supply.

5. Another Example

A mango seller sells mango in Maharashtra. However when he realized that the demand of mangoes has suddenly increased in Tamil Nadu, he decided to sell mangoes for that season from there. He took all the boxes of mangoes from Maharashtra to Tamil Nadu and start selling from a small tent shop. Now tax on supply made from such temporary place where he is not registered could be done as a casual taxable person.

Now, it should be clear to you the difference between paying IGST and paying tax as a casual taxable person.

6. Procedure for registering as a casual taxable person

A casual taxable person cannot opt for composition levy scheme. Further, the threshold limit of Rs. 20 lakhs is not applicable for him. He has to take compulsory registration in GST even his supply is below the threshold limit.

For registering as a casual taxable person the person has to apply for registration 5 days in advance of commencement of business. There is no separate form for casual taxable person and he has to apply in FORM GST REG-01. During registration he has to specify the time for which he requires registration. He may be granted registration for a period which is not more than 90 days. Application for extension of this period could be applied for by the taxable person. A further extension of not more than 90 days may be granted by the department.

At the time of registration a casual taxable person needs to self assess his expected liability of tax after the supply is over. Such assessed amount needs to be deposited with the department in advance at the time of registration. On applying for extension again such amount which he estimates to be his additional liability should be deposited with tax department.

After his supply is over he is eligible to deduct his actual tax liability and take refund of any excess amount he had deposited at the time of registration.

7. Conclusion

The concept of casual taxable person is widely misunderstood topic in this taxation. Lawbanyan.com has made effort to explain you this concept with practical examples. Carefully analyze whether you have to pay IGST or get registered as casual taxable person before paying taxes.  The importance of the place from where the supply is made should be carefully observed. Besides the procedure described above must be complied with.

If still anything you feel needs to be added to the explanation feel free to comment below.

You may also like to learn about  supply in GST.

 

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Concept development on Input Tax Credit in GST

Topics covered

1.       Introduction

2.       Understanding the concept with an Example

3.       Documents required for availing Input Tax Credit

4.       Input Tax Credit in cases where the consideration involved is not paid.9 (Rule 37 of Central Goods and service Tax Rules, 2017)

5.       Eligibility criteria for availing Input Tax Credit (Section 16 of CGST, 2017)

6.       Goods or Services used for business as well as for other purpose (Section 17(1) of Central Goods and Service Tax, 2017)  

7.       Goods used for supply of exempted and non exempted supplies (Section 17(2) of Central Goods and Service Tax, 2017)

8.       What does exempted and non exempted supplies include

9.       Calculation where inputs/ input services are common to exempted and non exempted supplies/ business or non business use (Rule 42 of Central Goods and Service Tax Rules, 2017)

10.   Credit availment in Banking Company and Financial Institutions:

11.   Non availability of Input Tax Credit as per section 17(5) of Central Goods and Service Tax, 2017

12.   Availability of Input Tax Credit in Special Circumstances (Section        18 of Central Goods and Service Tax Act, 2017)

13. Conclusion

 

1. Introduction

One of the advantages of Goods and Service Tax is elimination of cumulative taxation as a manufactured product get through more than one stage of production. Input Tax Credit enables to tax only the value addition at each stage of production. The same is true for the provision of service. Here the manufacturer or the service provider is allowed to take credit of inputs or input services used in manufacture or provision of service. He may later use this credit to discharge his tax liability.

2. Understanding the concept with an Example

Let us understand this concept using an example. A glass window manufacturer manufactures glass window. This process of manufacturing requires inputs such as glass, window frame, hook, glue etc. When he procures these items he pays GST which is included in the invoice of the vendors. When he finally manufactures and clears the glass window he is again collecting and paying the GST on the final value of window. It is to be noted that this value includes the cost of inputs along with GST paid thereon. This window may be a part of a building where again GST may be payable when someone purchases a flat in the building. In this example we see that GST is charged thrice till the final consumer buys the item. However it is not in spirit of taxation to charge the same product or service thrice at different stages. Instead tax should be charged at the value addition at each stage. So the concept of Input Tax Credit is developed. In this the glass window manufacturer may take credit of inputs i.e. glass, hook, window pane etc. He may later use this credit to discharge his tax liabilities. In this way the tax levied on the inputs is nullified by the input tax credit available to the window manufacturer. Similarly the builder may take credit of window and discharge liability while selling his flat.

Let the glass costs Rs. 100/- and GST is 10%(assumed). So the selling price becomes be Rs. 110/-. Now the glass manufacturer buys this glass at Rs. 110/-. Let profit and other costs be Rs. 100/-. So he manufactures glass at Rs. 210/-(110+100). On including GST 10% the final cost becomes Rs. 231/- (210+10% of 210) if no input tax credit is available.  With input tax credit, the price of glass is Rs. 110/-. The glass window manufacturer takes Rs. 10/- credit on buying glass which he can use for paying tax. So now he can sell the same window at Rs.200/- (100+100) plus tax. This is Rs. 210/-(200+ 10% of 200). So you can clearly see the benefit of input tax credit. The price of the same article is reduced. Further the tax is suffered by the goods at each value addition.

3. Documents required for availing Input Tax Credit

The input Tax credit is available to a registered person or a Input Service Distributor on the production of the following documents

  1. Invoice issued by the supplier of goods or services
  2. Invoice issued by in accordance to the provision of section 31(3)(f). This provision is related to self invoicing under reverse charge mechanism. Kindly follow the post on Reverse Charge Mechanism to understand it in details.
  3. Debit note issued by the supplier of goods or service.
  4. Bill of Entry or any similar documents prescribed in the Customs Act, 1962 or related rules.
  5. Credit note or other documents issued by Input Service Distributor.

The documents mentioned above should contain the following details

  1. Amount of tax charged
  2. Description of goods or services
  3. Total value of supply
  4. GSTIN number of supplier and recipient
  5. Place of supply

It is to be mentioned that Input Tax Credit availed on payment pursuant to any demand by tax authorities based on willful misstatement , fraud or suppression of facts shall not be allowed.

4. Input Tax Credit in cases where the consideration involved is not paid (Rule 37 of Central Goods and service Tax Rules,2017)

A recipient of goods or services may avail the tax immediately on receiving the invoice from the supplier. However if he fails to make payment to the supplier within 180 days he has to reverse the amount of tax credit availed by him on such inputs or input services. The recipient in this case is liable to pay interest from the date of availing credit till the date when the credit is reversed.

Such supplies have to be declared in FORM GSTR-2 for the month immediately following 180 days as discussed above.

The recipient is allowed to avail the credit as soon as the payment is made by him.

5.Eligibility criteria for availing Input Tax Credit (Section 16 of Central Goods and Service Tax Act, 2017)

The following are the eligibility criteria to be complied with for availing Input Tax Credit:

  1. The registered person availing such Input Tax Credit is in possession of such invoice.
  2. The person availing credit has received the goods and services to which the invoice pertains.
  3. The tax charged in the invoice is actually paid to the government.
  4. The person availing such credit has made payment to the supplier of goods or service within 180 days of issue of invoice.
  5. If the recipient of goods is receiving the goods in multiple lots then he may avail the credit after receiving the final lot.
  6. The registered person may avail the Input Tax Credit on  any invoice or debit note on supply of goods or service till the last date of filling the return of September month coming after the financial year to which the invoice or debit note pertains. For example if the date of invoice is 30.12.2018 then he may avail the credit upto the last date of filling September’2019 returns.
  7. Input Tax Credit on Capital Goods can be availed if the person has not claimed depreciation on tax component of cost of capital goods under provision of Income Tax Act,1961.

6.Goods or Services used for business as well as for other purpose (Section 17(1) of Central Goods and Service Tax, 2017)

If input goods or input services are used for business as well as for other non business purpose then the recipient is eligible to take only that much credit which is attributable to his business purpose only. We will examine the case where the inputs or inputs are common to both and process to separate the eligible credit in later section.

7.Goods used for supply of exempted and non exempted supplies (Section 17(2) of Central Goods and Service Tax, 2017)

There may be situation where input goods or input services are used for exempted supplies as well as for non-exempted supplies. Then the recipient is eligible to take only that much credit which is attributable to his non-exempted supplies only. We will examine the case where the inputs or inputs are common to both and process to separate the eligible credit in later section.

8.What does exempted and non exempted supplies include

Exempted supplies include

  1. Supplies exempted by any notification or otherwise
  2. Supplies where the recipient is liable to pay tax under Reverse Charge Mechanism.
  3. Transaction in securities.
  4. Sale of land.
  5. Sale of building after completion.

 

Non exempted supplies shall include:

  1. Supplies where no exemption is provided by any notification or otherwise
  2. Zero rated supplies

9.Calculation where inputs/ input services are common to exempted and non exempted supplies/ business or non business use (Rule 42 of Central Goods and Service Tax Rules, 2017)

Let,

T= Total Input Tax Credit involved in a tax period.

T1= Part of T, used for activities which are not related to business.

T2= Part of T, attributable to input / input services used exclusively for exempted supplies.

T3= Part of T, attributable to inputs/ input services where credit cannot be availed under section 17(5) of Central Goods and Service Tax Act, 2017.

T4= Amount of Input Tax Credit attributable to input/ input services used exclusively for providing non exempted supplies.

C= Common credit attributable to supply of exempted and non-exempted supply/ business and non-business supplies then,

C= T-[T1+T2+T3+T4]                                                                                                                        à1

Now if we consider,

D1= Input Tax Credit attributable to exempted supply

E= Turnover of exempted supplies.

F= Turnover of total supplies.

Then,

D1= C  x  (E / F)

If common inputs / input services are used partly for non business and partly for business purpose, then part attributable to non-business purpose be D2 then,

D2= 5% of  C

Now the part of common credit attributable to non-exempted and business purpose shall be Cf,

Cf = C-[D1+D2]

 

So now the recipient of inputs or input services is eligible to avail credit of T4 and Cf.

In practical scenario such calculation may be difficult. So the easy way is to avail the entire credit except T2 and T3. Then reverse the credit amount D1 and D2.

 

10. Credit availment in Banking Company and Financial Institutions:

 

For availment of Input Tax Credit for banking company / financial institution two options are available

  1. The registered institution may avail or reverse the credit in accordance to Rule 42 of Goods and Service Tax, 2017 which is already discussed above.
  2. The institution may reverse 50% of total tax credit which is available with him.

11. Non availability of Input Tax Credit as per section 17(5) of Central Goods and Service Tax, 2017

The recipient of inputs or input services shall not be eligible to take Input Tax Credit on the followings:

  1. Motor vehicles used for transportation having seating capacity not more than 13 persons (including driver) except in cases where motor vehicle is used for
  2. Further supply of motor vehicle
  3. Transport of passengers
  4. Imparting training on driving of motor vehicle
  5. Vessels or aircraft except when used for
  6. Further supply of such aircrafts / vessels.
  7. Transportation of passengers
  8. Imparting training for navigation of vessels or flying of such aircrafts.
  9. Transportation of goods.
  10. Services of General Insurance, servicing, repair and maintenance of motor vehicle , vessels or aircraft. However credit is allowed to be availed if the same is used for the furtherance of same line of business.
  11. Foods and beverage, outdoor catering, beauty treatment , health service, cosmetics and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft, life insurance and health insurance.
  12. Membership of club, health and fitness centre.
  13. Travel benefit extended to employees on vacation such as leave or home travel concession. However such credit can be availed if it is obligatory for the employer to provide it to their employees under the law at that time.
  14. Works contract service when supplied for construction of immovable properties (other than plants and machinery). This credit may be allowed if the services are used for further supply of works contract service.
  15. Goods and service received for the construction of immovable properties (except plant and machinery). This may be allowed if used for further supply of works contract service.

12. Availability of Input Tax Credit in Special Circumstances (Section 18 of Central Goods and Service Tax Act, 2017)

  1. There are circumstances where the recipient of goods and service is allowed to take input tax credit of good lying in stocks, semi finished, finished goods and capital goods. These are the special circumstances which are discussed below:
  2. A person who has applied for registration within 30 days from the date on which he becomes liable for registration and has been granted registration.
  3. A person who takes registration under registration under the provisions of Section 25(3) of Central Goods and Services Tax Act, 2017.
  4. A person who ceases to pay tax under section 10 (composition levy) and becomes liable to pay tax under normal tax structure (section 9 of CGST, 2017).
  5. When an exempt supply becomes taxable for a person then the credit mentioned above pertaining to such taxable supplies is available to him.

 

Condition of availing input tax credit under above circumstances

  1. Input Tax Credit can be availed on invoices which are not more than 1 year old. This one year is calculated from the date of invoice.
  2. Credit on capital goods shall be reduced on pro rata basis before availing. For example ,

Suppose the total credit available on capital goods be Rs.1, 00,000/- and the useful life of capital goods be 5 years. The capital goods is already 3 years old and so only 2 years (5-3) of useful life is remaining. So the credit that can be availed is Rs. (2/5)* 100000= Rs.40, 000/-

Formula:

ITC on Capital goods= (Useful life remaining/ Total useful life of capital goods )* Total ITC available on such Capital Goods

  • If the invoices of inputs held in stock are not available then the input tax credit is calculated from the prevailing market price of the goods. The Input Tax Credit may be availed accordingly.

 

  1. In case of sales, mergers, demerger, amalgamation, lease or transfer of business the transferor of business may make the unutilized Input tax Credit in his electronic credit ledger available to the transferee of business. This credit may be taken by the new business in its electronic credit ledger.
  2. If a person opts to pay tax under section 10(Composition levy) of this Act, then he has to pay the amount by debit in his electronic credit ledger. This amount shall be equivalent to the sum total of the credit contained in goods or input services lying in stock, semi finished goods, finished goods and capital goods

13.Conclusion :

Input Tax credit is an important part of the seamless flow of capital in the business. Hence requirement of a clear understanding of this concept need not be overemphasized. Lawbanyan hopes that it has provided you a fair understanding of the topic. If you have missed anything it is recommended to go through the post again.  If you still have questions you are free to post your queries below.

You may also read about Input Service Distributor from the link

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E Way bill- A better way to compliance

Topic

  1. Introduction
  2. Who has to carry e-way bill?
  3. Who will generate E way Bill?
  4. Exemptions in carrying e way bill
  5. Generation of E-way bill
  6. Documents to be carried while movement of goods
  7. Value included in the e way bill
  8. Validity of e way bill
  9. Extension of validity of e way bill
  10. Cancellation of E Way Bill
  11. Notification 2 to 6/2018 UTT dated 31.03.2018
  12. Conclusion

Introduction:

E way bill is a new concept developed in the Goods and Service Tax system in India. Its main objective is to ensure better tax monitoring and better tax compliance. Every goods movement with certain exception has to be accompanied by additional document known as e-way bill. The focus of this new piece of legislation is to keep a track on the movement of goods keeping tax interest in view. The concept of e way bill is covered in Rules 138 and  138A to 138D of the GST Rules.

Who has to carry e-way bill ?

All GST paid goods movement having value above Rs. 50,000/- must accompany e-way bill. There are certain exemptions and conditions which we will be covered in the coming sections.

Who will generate E way Bill?

  1. The registered supplier has to generate E way Bill. The supplier has been given this responsibility as he is aware of the entire information related to transportation. However the recipient may also generate E way bill based on the information received from the supplier.
  2. Transporter may also generate E way bill based on information received from supplier/ recipient.
  3. Where goods are transported from an unregistered person to a recipient who is a registered person then the recipient has to generate the E way bill. In such case the transport is said to be carried out by the recipient and he will be treated as supplier for the purpose of the law.
  4. An unregistered person who is causing movement of goods has an option to generate E way bill.
  5. A registered person or transporter causing movement of goods having less than Rs.50, 000/- has an option to generate E way bill.

Exemptions in carrying e way bill

No e way bill is required for the following categories

  1. Transportation of goods specified in Rule 138 of the Central Goods and Service Tax Rule,2017

This includes

  1. LPG supplies to household and non domestic exempted category customers.
  2. Kerosene oil sold under PDS.
  • Postal Baggage transported by Department of Post.
  1. Natural or cultured pearl and precious and semiprecious stones, precious metals and metals clad with precious metals.
  2. Jewelry, goldsmith and silversmith’s wares and other articles in chapter 71.
  3. Currency
  • Used personal and household effects.
  • Coral- unworked / worked.

 

  1. Transportation of goods by non motorized conveyance.
  2. Transportation of goods from port, airport, air cargo complex and land customs station to Inland Container Deport or Container Freight Station.
  3. Movement of goods within area notified under Rule 138(14)(d) of the GST Rules of the state concerned.
  4. Goods (other than de-oiled cakes) as specified in schedule appended to notification 2/2017 CT (Rate) dated 28.06.2017. This is list of goods exempted.
  5. Alcoholic liquor for human consumption, petroleum crude, high spirit diesel, motor spirit (petrol), natural gas or aviation turbine fuel.
  6. Goods in Schedule III of CGST Act, 2017 which has been declared as no supply.
  7. Goods transported under custom bond and supervision of ICD, CFS, port, airport, customs station etc. under Customs seal.
  8. Transit cargo from or to Nepal or Bhutan.
  9. Where goods are exempted under relevant notification.
  10. Movement of goods under defense under Ministry of Defense as consignor or consignee.
  11. Transport of empty cargo containers.
  12. Transport of goods upto a distance of 20kms from the place of business of consignor to a weighbridge for weighment. However in such instance the goods must be accompanied by delivery challan in accordance with rule 55.
  13. Where empty cylinder for packing of LPG are being moved for reason other than supply.

Generation of E-way bill

E way bill has two parts

  1. Part A contains basic details like GSTIN number of recipient, place of delivery, invoice number/ challan number, value of goods etc.
  2. Part B contains transport details.

Process of generation:

  1. Go to the GSTN portal where E way bill could be generated prior to movement of goods.
  2. Furnish the information in Part A of Form GST EWB-01 in the portal.
  • Furnish the information in Part B of Form GST EWB-01.
  1. E way bill will be generated on submission of information as given above.

Documents to be carried while movement of goods

  1. Invoice/ Bill of supply/ delivery challan.
  2. A copy of the e way bill.

Value included in the e way bill

The e way bill shall include the value of all taxable goods that is carried in the cargo. If taxable and nontaxable goods are both carried in a single invoice then the value of exempted goods shall be excluded from the value for the purpose of calculation the Rs,.50,000/- limit for e way bill generation.

Validity of e way bill

 

Sl. No. Distance Validity period
1 Upto 100kms One day in case of other than Over dimensional cargo
2 For every 100km or part thereof thereafter One additional day in case of other than Over dimensional cargo
3 Upto 20kms One day in case of Over dimensional cargo
4 For every 20km or part thereof thereafter One additional day in case of Over dimensional cargo

 

Here Over Dimensional Cargo means cargo carried as a single indivisible unit and which exceeds the dimensional limits prescribed in Rule 93 of Central Motor Vehicle Rules, 1989 made under Motor Vehicle Act, 1988.

Extension of validity of e way bill

  1. There may be circumstances where the goods cannot be transported within the prescribed time limit. In such exceptional situations the validity of the e way bill may be extended by uploading the details in Part B of the FORM GST EWB-01.
  2. Commissioner upon recommendation of GST council may extend the validity of e way bills for certain items by issuing a notification.

Cancellation of E Way Bill

It goods mentioned in the e way bill are not transported or details of transportation is altered then the e-way bill may be cancelled in 24 hours. However the e way bill which has been verified during transit cannot be canceled.

Notification 2 to 6/2018 UTT dated 31.03.2018

The above notification has relaxed the requirement of carrying e way bill in the state of Andaman & Nicobar Island, Chandigarh, Dadra and Nagar Haveli, Daman and Diu and Lakshadweep.

Conclusion:

Though being an added effort for the taxpayers, e way bill is an important milestone for the tax law legislation in India. It will help the government to better track the movement and enforce better tax compliance. The tax evaders could be brought to books more easily than before. This very thing may look scary to the people from the industry but any improvement in tax collection will ultimately lead to more tax equalization. This will eventually benefit the industry and people of the country at large.

You may also read about concept of valuation in GST

and E invoicing

Posted on

Supply in GST- What is supply?

Topics covered

  1. Introduction to Supply in GST
  2. Definition of supply in GST
  3. Deemed Supply in GST
  4. Declared Supply
  5. Negative list
  6. Zero rated supply
  7. Composite Supply
  8. Mixed Supply
  9. Conclusion

Introduction to supply in GST

Supply truck

In the previous indirect tax laws you may have seen that tax was imposed at the time of clearance of goods (excise), on provision of service (Service Tax), on sales (VAT), etc. There were a plethora of different events where different taxes were levied. With the introduction of Goods and Service (GST) Tax the task was to choose an event where all the above taxable events could be subsumed. After deep thinking and discussion it was decided that the taxable event would be the supply of service.  So the Goods and Service Tax is the supply based taxation. You are suggested to read the post entirely without skipping in between to have a proper understanding of the topic.

Definition of supply in GST

Supply

Supply in GST includes the followings as per section 7(1) of Central Goods and Service Tax, 2017

  1. All forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person for the furtherance of business.
  2. Import of services even if cause without furtherance to business.
  3. The activities specified in schedule I made with or without consideration.

There are some general features for an activity to qualify as supply for taxability under GST.

  1. Supply may be supply of goods or service. Anything other than goods or service shall not be considered as a supply for applicability of GST.
  2. Consideration is an important feature for any supply. This consideration may be in form of cash or other forms. Here deemed supplies in schedule I of Central Goods and Service (CGST) Act, 2017 are exceptions where consideration may or may not be involved.
  3. Supplies shall be for the furtherance of business. For example, suppose you brought a watch. However after few days you felt that the watch is not suiting you and you might go for a more expensive watch. You go to the watch store and sell it as a second hand. Such supplies are not for furtherance of business. So they are not taxable supplies. On the other hand supply of tissue paper by a tissue paper manufacturer is a taxable supply as it is in course of furtherance of his business. As exception always prevail. Import of service is taxable supply even without causing any furtherance of business.
  4. Supplies should be made by taxable person in taxable territory. However, import of service is one such situation where taxability arises even without supply being provided by a taxable person.

Supply of fruits by vendor

Deemed Supply in GST

As the title suggests you would be learning about those activities which are deemed to be supplies in GST. In such cases the consideration for the supply may or may not be present. These supplies includes-

  1. Permanent transfer or disposal of business assets on which input tax credit is availed. For example if Company A procures a machine and claims input tax credit. But after 2 years he realized that the machine has become obsolete and needs to be disposed of to bring new machine in its place. Then while disposing off the machine tax has to be paid off.
  2. Related party transaction. Here the supply of goods or service happens between related parties. Kindly check out other posts on this blog to learn about valuation of such related party transactions.
  3. Supplies between the agent and the principle are considered as a taxable supply. For example if the agent procures the goods from the market and send it to the principle then such supplies are taxable supplies. Similarly if the principle sent his goods for sale to his agent then taxability arises. However on such supplies input tax credit can be claimed. The valuation of such supplies shall be similar to the supplies in case of related party transactions.
  4. Import of services by a taxable person from a related person or any other of his establishment outside India, in course of furtherance of business.

Declared Supply in GST

Goods vs services

Declared supplies are activities listing in Schedule II of the Act which are declared to be supply of goods or supply of service as the case may be. These activities are listed below

  1. Any transfer of title of goods is a supply of goods. For example sale of goods.
  2. Any transfer of rights in goods or undivided share of goods without the transfer of title of goods is supply of services.
  3. Any transfer of title of goods under an agreement which says that at a future date the goods shall pass on to the recipient upon payment of full consideration is a supply of goods.
  4. Land and Building
  5. Any lease, tenancy, easement, license to occupy land is supply of services.
  6. Any lease or letting out of building including commercial, industrial or residential complex for business or commerce is supply of services
  7. Treatment or process
  8. Any treatment or process applied to other persons goods is deemed as supply of services.
  9. Transfer of assets
  10. Where goods which are part of assets of a business are transferred or disposed so that they no longer forms the part of the assets, whether with or without consideration then such supplies are of the nature of supplies of goods.
  11. If the goods used for the purpose of business are put to private use by or under the direction of the person running the business, with or without consideration, the act of making available such goods is a supply of services.
  12. Where any person ceases to be a taxable person any goods forming the part of the assets of any business shall be deemed to be supplied by him immediately before he ceases to be a taxable person, unless
  13. The business is transferred as a going concern.
  14. The business is carried on by personal representative who is a taxable person.
  15. Supply of services
  16. Renting out of any immovable property.
  17. Construction of or alteration of any existing complex, building, any civil structure or part thereof is supply of services. It includes construction of complex or building intended for sale to a buyer. However such construction activity after the entire consideration is received after the issuance of completion certificate or first occupancy certificate whichever is earlier shall not be considered as supply for the purpose of taxability.
  18. Temporary transfer or permitting the use of intellectual property rights shall be supply of services.
  19. Any development, design, programming , customization, adaptation, upgradation, enhancement or implementation of information technology software shall be supply of service
  20. Agreeing to an obligation to refrain from an act, or to tolerate an act or a situation or to do an act is considered as supply of services.
  21. Transfer of rights to use any goods for any purpose for cash, deferred payment or other consideration is supply of services.
  22. Composite supply
  23. Works contract shall be considered as supply of service even if supply goods are involved. Here the tax is levied on the entire value of works contract.
  24. Supply of goods being foods or any other article for human consumption (other than alcoholic liquor for human consumption) for a consideration shall be considered as supply of service. Such supply may be a part of other services or consequent to provision of any other service. For an example the supply of food in rooms of a hotel is a composite service being part of hotel service and not distinct service.
  25. Supply of goods by any unincorporated association or body of persons to a member of that association for cash or any other valuable consideration shall be treated as supply of goods.

Negative list

negative list for supply in GST

Schedule III of the CGST, 2017 has prescribed the list activities which are neither supply or goods neither supply of services. We will discuss them one by one as follows

  1. Services by an employee to an employer in course of relation to employment are not taxable supplies. So suppose a software engineer is providing service to a IT company and he is also on the payroll of the company then such supplies are not taxable.
  2. Services by any court or tribunal established under any law for the time being in force are not taxable.
  3. a. the functions performed by the Member of Parliament, Member of State Legislature, Member of Panchayats, Member of Municipalities and Member of other local Authorities                                                                                                                b.The duties performed in pursuance of any provisions of the Constitution in that capacity.                                                                                                                                      c,The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Government or local authorities and who are not deemed as employee before the commencement of this clause.
  4. Service rendered in funeral, burial, crematorium or mortuary including transportation of the deceased.
  5. Sale of land subject to clause (b) of para 5 of Schedule II, sale of building. You may refer to the link to read more about service on construction as a works contract service
  6. Any actionable claim excluding lottery, betting and gambling.
  7. Supply of goods from one non taxable territory to another non taxable territory without goods entering into India.
  8. Even supply of warehoused goods to any person before clearance for home consumption is included in this list.
  9. Supply of goods by consignee to another person by endorsement of document of title to the goods after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.

In addition the government can notify goods or services in the negative list from time to time.

Zero rated supply

Zero percent tax

The zero rated supply has been defined in section 16 of the Central Goods and Service Tax (CGST). Such supplies may or may not be exempted from tax. The difference between exempted and zero rated supply is in exempted supply there is no need to pay tax (GST) on supplies. However they would not be eligible to take input tax credit on the inputs or input service leading to such supplies. On the other hand in zero rated supplies the assessee is paying tax at zero rate which is eventually no tax as was the case in exempted supply. But now he would be eligible for the input tax credit on inputs and input services. Further he may claim refund in case of unutilized credit. These services are

Composite Supply

Composite Supply

                    Composite supply has been defined in section 2(30) of the CGST Act, 2017. It means two or more supplies of goods or services which are naturally bundled and are supplied in conjunction of each other. For an example in many big hotels we find that laundry facility and food in room service is given. In such case renting of accommodation is the primary activity. However laundry and food supplies are naturally bundled up with the primary activity. These services are called composite services.

In composite services the rate of GST is same for all the bundled supplies. In this example the rate of tax for laundry and food shall be equal to that of the renting of accommodation.

Mixed Supply

Mixed Supply

Mixed supply in GST is defined in section 2(74) of the CGST Act, 2017. In such supplies we see that two or more supplies are made in conjunction for a single price in such a way that they are not naturally bundled up. One important characteristic of such supplies is that each supply could be made independently but the supplier chose to bundle up different supplies to make it a single supply i.e. the supplies are not naturally bundled as we saw in the previous example.

                       For instance a box of hamper which contains chocolates, fruits, sweet, drinks, etc is sold for a price. Here each item could be supplied independently. However when all the items are sold as a hamper, it becomes a mixed supply. Here the rate of tax applicable under GST shall be the highest rate of tax among all the items in the hamper.

Conclusion

Supply is an important concept for understanding the taxability under Goods and Service Tax. In this post all the kinds of supplies are covered.

Also learn about casual taxable supply and registration in GST.

E invoicing 

If you like this post, have queries or require any improvement as per your need please leave a comment. You may also refer to other posts on GST which in this blog site which are absolutely free contents.

Posted on

Valuation in GST: A complete guide

Topics covered under valuation in GST

  1. Introduction to Valuation in GST
  2. Valuation for taxation
  3. Related party transactions
  4. Who are related parties?
  5. Non monetary Consideration
  6. Inclusions in the Valuation
  7. Exclusions from the valuation
  8. Valuation in case of Pure agents
  9. Valuation for buying and selling second hand goods
  10. Value of service on Air Ticket booking
  11. Valuation in case of Insurance business
  12. Conclusion
  13. References

 

1.Introduction to valuation in GST:

Valuation in GST is a very important topic to understand for a person concerned with paying taxes. Taxes may appear an extra and non important part of the business to many who are only focused on increasing sales. But to be frank keeping a tap on cost is as important as maintaining your sales. Taxes are an important part of your costing. You do not want to pay extra tax. Nor do you want to pay less which later added with interest and penalty becomes a burden for the business. Here comes the importance of understanding valuation so that you can pay correct amount of taxes.

2. Valuation for taxation:

Value for the purpose for taxation is normally the transaction value of goods and services. This is as per section 15(1) of the CGST Act, 2017.

Let us take an example. Suppose Company A sells 1 ton of iron for an amount of Rs.3000/- per ton to iron and steel Company B. Then the Company A has to pay tax on the price Rs. 3000/-to the government.

3.Related party transactions: 

Now what will happen if in the above example Company A and Company B are related concerns. As Company A is related to Company B let us assume that iron was offered at a price of Rs. 2000/- per ton instead of Rs. 3000/- per ton. If we go by the earlier rule tax will be calculated on a lesser value that is Rs. 2000/-.This will be a case of under valuation. To deal with such situation section 15 specifies that in related party transaction the price at which the sale takes place is not the sole parameter to arrive at the valuation for the purpose of taxation. Valuation will be based on the Rule 28 of Central Goods and Service Tax (CGST) Rules 2017.

  1. Open market value for such supplies- In the above case the if the open market value for iron is Rs. 4000/- then tax is payable by Company A on Rs.4000/- irrespective of the sale price which is Rs. 2000/- in this case.
  2. Open market value not available – Now suppose open market value is not available. Company A may be operating in an area where no other supplier of iron is present. In this case value of supply of like kind and quality is taken as value for the purpose of calculating tax. In the example let us take another unrelated Company C who is getting iron from Company A at the rate of Rs.3000/- ton. So Rs. 3000/- may be taken as assessable value for supply.
  3. Valuation cannot be determined by the above methods- What if the valuation could not be computed by using the above two methods. In such cases value is determined as per Rule 30 where 110% of the cost of goods sold is calculated. Tax would be payable on such calculated amount. Suppose the cost of iron is calculated as Rs. 2000/- per ton. Then 110% of Rs.2000/- i.e. Rs.2200/- is the assessable value.

4. Who are related parties?

related party

Related parties /persons are those persons who shares the following relationships among them

  1. Related persons are officers or directors of both the companies
  2. Such a person may be legal partners.
  3. Such persons are employers or employee.
  4. One of them is directly or indirectly in control of the other.
  5. One such person directly or indirectly controls or holds at least 24% voting shares or stocks.
  6. Both of them are controlled by a third party/ person.
  7. Together they directly or indirectly control a third person.
  8. They are members of the same family.
  9. Persons who are associated in the business of one another.

In the above definition persons denotes a normal person as well as a legal person. For example a company may be treated as a legal person.

5. Non monetary Consideration

It is not necessary that the transaction is always in form of money. In the above example Company A and Company B may have an agreement between them according to which Company B gives coke and labour in return of the iron purchased from Company A. Valuation becomes a bit tricky in such a case. In such a case the taxable value shall be determined as per the provisions of Rule 27 of CGST Rules, 2017 by the following method

  1. Open market value for such supplies- In the above case the if the open market value for iron is Rs. 4000/- then tax is payable by Company A on Rs.4000/- irrespective of the sale price which is Rs. 2000/- in this case.
  2. Open market value not available – Now suppose open market value is not available. Here the sum total of the consideration in money and money equivalent of the consideration received in monetary form. For example if the Company B gives Rs. 1000/- in cash and Rs. 2000/- worth coke, then the taxable value shall be Rs. 3000/- (Rs.1000/-+Rs. 2000/-)
  3. Value could not be determined as per 1& 2- In this situation the value of supply of like kind and quality is taken as value for the purpose of calculating tax.
  4. Valuation cannot be determined by the above methods- What if the valuation could not be computed by using the above two methods. In such cases value is determined as per Rule 30 where 110% of the cost of goods sold is calculated. Tax would be payable on such calculated amount. Suppose the cost of iron is calculated as Rs. 2000/- per ton. Then 110% of Rs.2000/- i.e. Rs.2200/- is the assessable value.

6. Inclusions of items in the Valuation in GST

The value for the purpose of tax shall include the following

  1. Any taxes, duties, cess, fees and charges levied under any Act, except GST. GST compensation cess shall be excluded from the valuation if charged separately by the supplier.
  2. Any amount that supplier is liable to pay which has been incurred by the recipient shall be included in the valuation. For example during the construction of the building sometimes water charges are incurred by the recipient of service. In such case the cost of procuring water for construction shall be included into the value of service.
  3. Any incidental expense in relation to sales like packing, commissioning, loading and unloading, etc.
  4. Subsidies linked to supply except Government subsidies shall be included in the value.
  5. Interest /late fee/ penalty for delayed payment of consideration shall be included in the value.

7. Exclusions of items from the valuation in GST

Discount can be excluded from the valuation. Only two conditions has to be fulfilled

  1. Such discounts are part of the agreement before the actual supply has occurred and is indicated in the invoice.
  2. Input tax credit as is attributable to the discounts on the basis of the invoices has been reversed by the recipient of supply

8. Valuation in GST in case of Pure agents

Who are the pure agents? GST Act has defined agents as person including a factor, broker, commission agent, argatia, del credere agent, an auctioneer or any mercantile agent who carries the receipt of goods or service on behalf of other. He is a mere facilitator for the movement of goods or provision of service between the actual provider and the recipient. To qualify as a pure agent the following conditions needs to be satisfied by the agent

  1. The supplier behaves like a pure agent when he makes the payment to the third party on authorization of the recipient of goods or service.
  2. Here the supplier indicates in his invoice the payment made by him as a pure agent on behalf of the recipient .
  3. The supplier has provided service for receipt of goods or service from the third party to the recipient in addition to the actual goods or service received.
  4. The pure agent neither intends to hold nor holds the title of goods in his own name. He has not used the goods or service for his own purpose.

Now how to do valuation in GST for such a case? Clearly as per the prescribed rules the cost of goods and service received from the third party has to be excluded to arrive at the taxable value. Suppose the agent employed to sell tissue papers from a tissue paper manufacturer to a hotel. The value of tissue paper may be Rs. 1000/- per box. In addition the agent is charging Rs. 200/-from the tissue paper manufacturer. Here the total invoice amount is Rs. 1200/- where value of goods Rs.1000/- is separately indicated in the invoice. Now as the agent does not hold any title of goods, this is box of tissue paper in this case. Rs. 200/- has to be the taxable value on which the agent has to pay tax.

9. Valuation in GST for buying and selling second hand goods 

A seller sells an old item or a good as such or with minor modification. In this situation the  seller does the valuation for the purpose of GST  by calculating the difference between the purchase price and sale price of goods. Here the seller cannot avail the input tax credit for the purchased item. For an example a trader sells an old helmet . He has purchased the helmet at Rs.500/- but sells at Rs. 600/-. The difference between the cost price and the sale price which is basically the profit margin for the trader is the taxable value. In this case the trader pays tax on Rs. 100/- (Rs.600/- -Rs. 500/-).

A seller may repossess goods from a buyer who has defaulted. In such case he calculates a depreciation of 5% per quarter from the date of purchase and date of disposal to arrive at the taxable value.

10. Value of service on Air Ticket booking

In air ticket booking by a travel agent the taxable value is calculated on the base fare. Base fare is the amount on which the air ticket agents receive commission. Here to arrive at the value the following formula is employed

  1. For domestic booking – 5% of base fare.
  2. For international booking -10 % of base fare.

11. Valuation in GST in case of Insurance business

Insurance amount may consist of value allocated for investment and value for insurance premium. For the calculation of value, the value allocated for investment has to be excluded from the taxable value.

If the payment as a single premium annuity policy is made 10% of the amount paid by the policy holder shall be the value. In other case 25 % of the premium charged in the first year and 12.5% in subsequent years shall be the value. The above valuation rules would not apply if the entire amount is paid for covering risk of a life insurance.

12. Conclusion

 The above valuation rules are comprehensive set which could be applied across any industry. It owes similarity to the older tax valuation method. Yet we could see that these are the basic rules which have been simplified in the GST regime considering the conflicts arising in the older tax regime. Nevertheless conflicts could not be ruled out completely. These issues make laws more robust wit time. Hoping this was a good educational and informative session for you I have left further links below which you may click for further reference.

13. References

  1. CGST Act, 2017 from CBIC website.
  2. Valuation articles in Taxmann.com
  3.  Goods and Service Tax by R.K. Jain

You may like to  learn about supply to have a better understanding of taxation.

You may also check topics like reverse charge mechanism and Goods and Service Tax in Construction industry.  Goods ans Service tax in textile/ apparel

Also learn about e-way bill

Posted on

Cheers for Construction Industry- GST rates reduced

 

Topic covered:

  1. Introduction to the changed rates
  2. Rule with a catch point
  3. Conditions/ obligation along with the new rates structure
  4. Optional rate regime
  5. GST on Commercial Space in residential projects
  6. Much Complicated tax structure
  7. Impact on tax collection base for the government
  8. Impact of GST rates on the home buyers
  9. Transition rules
  10. Conclusion

 

Construction of Homes

Introduction to the changed rates:

It is a big cheers for the construction companies as the Goods and Service Tax (GST)rates has been slashed by the GST Council. Earlier the rates were pegged at 12% for residential segment and 8% for affordable housing sector. Affordable housing includes homes costing Rs.45 lakhs or less and having maximum 60 sq. metre for urban housing and 90 sq. meter for rural housing. Now to a great relief to the builders related to construction of residential units the rates has been reduced to 5% for residential units and 1% for affordable homes.

 

Rule with a catch point:

Any good thing comes with a catch and so is it with recent rate reduction. The builders opting for the new tax rates are denied all kind of credit on his inputs/input services/ capital goods. In other words he cannot avail input tax credit on cements, concrete or any other items used in the process of construction.

Two Conditions

Conditions/ obligation along with the new rates structure:

There are two necessary conditions to be fulfilled by the builders for availing the benefit of the new tax structure

  1. No input tax credit allowed
  2. 80% of the procurement of inputs or input services (other than capital goods) has to be done from registered entities.

 

The first point is already discussed in the previous heading. Regarding the second condition, 80% of the procurement of inputs or input services (other than capital goods) has to be done from registered entities. If a builder fails to comply by falling short of 80% procurement then tax shall be payable on the shortfall under reverse charge mechanism.  The rate payable on such shortfall shall be 18%. However tax on cement purchase from unregistered entities shall be 28% of the value.

Optional rate regime:

The rate prescribed by the GST council is optional for the builders. A builder may opt between

  1. Older rate structure with input tax credit
  2. New rate structure without input tax credit and fulfilling the required condition.
GST in construction
Construction

GST on Commercial Space in residential projects: 

The GST Council clarified that residential complex with 15% commercial space shall be considered as residential properties. This would resolve problems in residential complexes with commercial features like club and restaurants.

 

Much Complicated tax structure:

Goods and Service Tax (GST) regime has often be boasted of being a simple tax arrangement. This was especially relevant for the construction industry. However with the recent changes it seems more complicated and difficult to comply. Forgoing the input tax credit may be the easy part but maintaining the 80% procurement from registered persons may look easier said than done. For many builders keeping tap on expenses may be a problem with limited options for procurement. Though the case may not be the same for everyone making an option for being in the older tax structure is a good thing.

Impact on tax collection base for the government:

Construction industry in India has often been taunted as one sector where the unaccounted money flows. Goods and Services Tax (GST) Council has taken a closer look at this situation and has tried to address it in its recent decision. The condition of 80% procurement from registered persons would compel more input/ input service providers to the construction industry to take registration. This will increase the tax base for the government. Besides there will be better accountability.

 

 

Impact of GST rates on the home buyers:

There is a mixed opinion by the experts on this subject. The option of 80% procurement of input /input services from registered persons may decrease supplier options for the builders incurring more cost to the builders. The non availability of input tax credit would further add to the cost. The increased burden would pass on to the home buyers in form of expensive homes. However there is another view on this. There degree of tax reduction is high enough to level out the added cost to the builders. This may bring the prices down. Moreover the builder will have option to choose between the older and the newer structure. He may be wiser to choose the better between both where cost is concerned.

 

 

Transition rules:

The final rules for transition of ongoing projects are yet to be taken by the GST council.  However as per the press release dated 19.03.2019 by Finance Ministry the following probable rules were given.

  1. ITC reversal shall be on prorate basis based on simple formula like credit in proportion to the booking of the flat and invoicing done for the booked flat is available subject to a few safeguards.
  2. For a mixed project transition shall allow ITC on pro-rata basis in proportion of carpet area of commercial area in the ongoing projects to the total carpet area of the project.

transition

Conclusion:

There would be more clarity in the coming times on transition rules. However the effort of the tax system for reforms and demand for better accountability from the industry is evident. It is only a  matter of time to see whether the efforts of the tax reforms bear any fruit in form of any benefit to the home buyers and the tax payers.

 

 

Related posts :

1.GST on construction as a works contract service

2. Press release by GST Council

 

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How GST works for E Commerce Operators ?

GST in E Commerce is totally a new topic of discussion in the Goods and Service Tax regime specially because the format of taxation has undergone a change in this particular area. Let us explore the topic in details as we go through the post.

Table of content 

  1. What is e commerce or electronic commerce?
  2. Three parties in e commerce model
  3. Goods and Service Tax for e commerce operator.
  4. Supplies notified by Government under section 9(5) of CGST Act, 2017
  5. E commerce is located outside India- Deadlock for section 9(5)
  6. Value of Taxable Supply
  7. Tax collection at source (TCS) for e-commerce operators
  8. Compulsory registration

1.What is e-commerce or electronic commerce?

E Commerce is an online marketplace platform where goods or services could be sold and purchased. Example of e commerce operator could be Amazon, Flipkart, Ola Cabs etc.

E commerce is defined in sub section 44 of section 2 of Central Goods and Service Tax Act, 2017. It means supply of goods or services over digital or electronic network.

 Similarly e commerce operator is defined in sub section 45 of section 2 of Central Goods and Service Tax Act, 2017 as person who provides digital or electronic facility over which electronic commerce could take place.

2.Three parties in e commerce model

  1. Supplier of Goods/Services who supplies goods or services
  2. Receiver of Goods/Services who is recipient of goods or services
  3. E Commerce operator who provides online platform for selling and purchasing of goods or services.
E Commerce Model

3.Goods and Service Tax for e commerce operator.

So the discussion for this discussion is taxability of e commerce operators in goods and service tax. Let us divide our topic under two heads – 1) Notified by the government under section 9(5) of Central Goods and Service Tax Act, 2017 and 2) Not notified by the government under section 9(5) of Central Goods and Service Tax Act ,2017.

4.Supplies notified by Government under section 9(5) of Central Goods and Service Tax Act, 2017

As the heading is self explanatory, you might have already guessed out that the goods or services are notified by the government where it feels necessary and is recommended by the GST council. Such notification is based for intra-state supplies of goods or services. With respect of such supplies the goods and service tax would be paid by the e commerce operator if such supplies are made through him. In such situation all the provisions of this act shall apply on e commerce operators as if he is the supplier of goods and service for the purpose of this act.

5.E commerce is located outside India- Deadlock for section 9(5)

                Now what if the e commerce operator is located outside the taxable territory. Such situations have been dealt with in the law itself. The act makes any person representing the e commerce operator in the taxable territory liable to pay the tax under this act.

 

                But what will happen if there is no representative of e commerce operator in taxable territory. There is nothing to worry as the act has taken great care in analyzing and implementing all the aspects in real scenario. In such situation it would be mandatory for the e commerce operator to appoint a person for the purpose of paying tax and such person would be liable to pay the tax.

6.Value of Taxable Supply for GST in E Commerce service

                For all supplies other than notified by the government under section 9(5) of Central Goods and Service Tax, 2017 the taxable value shall be the amount charged by the e commerce operators from the suppliers for letting them use their e commerce platform. The e commerce operator shall pay tax on this value. Further the tax on goods or services provided by the supplier are also taxable. Such tax shall be paid by the supplier of goods or services.

               On the other hand the tax for goods or supplies notified by the government under section 9(5) of Central Goods and Service Tax Act, 2017 shall be discharged by the e commerce operator. The taxable value shall be the value of goods or services supplied on such platform

7.Tax collection at source (TCS) in relation to GST in E Commerce operators

 

                This concept has come from the income tax law. Under Section 52 of the Central Goods and Service Tax Act, 2017    the e commerce operators shall collect an amount not more than 1% of net value of taxable supplies made through them as TCS (tax collection at source). Again such supplies shall be notified by the government on recommendation of GST Council. Net taxable supplies shall include aggregate value of taxable supplies of goods or services other than supplies notified in section 9(5) of CGST Act, 2017.

 

Quick practical points to remember for TCS(Tax Collection at Source):

 

  1. The TCS collected by an e commerce operator shall be deposited to the government by the 10th day of the next month when the said amount (TCS) was collected.
  2. The e-commerce operator has to file a statement to the tax department. This statement has to be filed electronically. It should detail the total outwards supply of goods and services. Beside the details of the supplies of goods and services returned through it shall also be mentioned in the statement. The statement has to be filed monthly and the 10th of every month is the date mentioned as per law for the filing of this statement.
  3. Similar to the statement mentioned in the above point, a consolidated annual statement at the end of the year shall be filed by the e commerce operator. This statement shall contain the details of the outward supplies of goods and services including the returned supplies. It has to be filed by 31st of December following that particular financial year. For example the statement for financial year 2018-19 has to file by 31.12.2019.
  4. The actual supplier of goods and services can claim the amount of TCS (Tax Collected at Source) in its electronic cash ledger.

 

 

8.Compulsory registration 

 

  1. The e commerce operators need to take compulsory registration for the purpose of paying TCS (Tax Collection at Source) to the government. It is important to note that the threshold of Rs. 20 lakhs turnover or Rs. 10 lakhs for notified states would not apply.
  2. The e –commerce operators needs to take compulsory registration for payment under section 9(5) of CGST Act, 2017 also.

Point iv and x of section 24 of the CGST Act,2017(Central Goods and Service Tax Act, 2017) are relevant provisions for the above points. In other words all the e-commerce operators need to compulsorily register under GST (Goods and Service Tax).

 Recommended links for the above topic

  1. https://cleartax.in/s/gst-registration-for-ecommerce
  2. Book by R. K. Jain
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Reverse Charge Mechanism in GST (Goods and Service Tax)

Table of Content for Reverse Charge Mechanism

  1. Meaning of Reverse Charge Mechanism (RCM)
  2. Example to understand better 
  3. Introduction to Reverse Charge Mechanism
  4. Relevant laws in Goods and Service Tax

  5. Exemption from Central Goods and Service Tax

  6. Reverse Charge Mechanism for only the furtherance of business
  7. Input Tax credit can be availed by the recipient or the supplier?
  8. Self invoicing in Reverse Charge Mechanism
  9. Compliance required as per Clarification in C.B.E & C. Flyer No.12 issued in January 2018
  10. Reverse charge under Integrated Goods and Service Tax
  11. Further the list of similar laws in CGST, IGST and UTGST
  12. Further reference 

  1. Meaning of Reverse Charge Mechanism (RCM)

            When a provider of goods/ services supplies goods/ services to a person known as ‘receiver’, normally, it is the provider who pays the indirect tax. It is GST in our case. However under certain circumstances it is the receiver of goods/ services who becomes liable to pays the tax to the government. This concept is called Reverse Charge Mechanism (RCM). Here as the name suggests the tax liability is reverse of the normal course of taxation in a provider- receiver relationship.

reverse charge mechanism

2. Example to understand better  

            Suppose Company ABC who is in the business of Goods and Transport provider transports goods from the premise of Company X to the premise of Company Z and charges an amount of Rs.500/-.Now Company Z settles the bill of Rs.500/-. Later he realized that Company ABC has not charged him GST in the bill. Ram Company Z’s tax consultant was quick to realize that it is his company who has to discharge the GST on the bill/ invoice as the tax liability has to be settled under Reverse Charge Mechanism (RCM).

Goods transport service

3.Introduction to Reverse Charge Mechanism

            With the above example you have already got some grasp on the concept under discussion. Let us now move a bit further to understand the prevalent structure of our Indian law on GST.

              Reverse Charge Mechanism in indirect tax is not a new concept. It was already there in the Service Tax regime in services like Goods and Transport service, imports of service, etc. With the advent of Goods and Service Tax period in July 2017 RCM has just donned a new cloth. Though there are some differences in tax structure form the previous period. One most prominent difference is applicability of reverse charge mechanism on goods and service both unlike in Service Tax regime where RCM was applicable only on services.

laws related to reverse charge mechanism

4. Relevant laws in Goods and Service Tax

            Sub section 3 of Section 9 of Central Goods and Service Tax, 2017 is the Central Government with the recommendation of Goods and Service Tax Council (GST Council) specifies the supply of goods and services on which Reverse Charge Mechanism (RCM) would be applicable. Government has specified the goods to be charges tax under reverse charge mechanism under notification no. 04/2017-Central Tax (Rate) dated 28.06.2017 as amended by notification no. 36/2017-C.T. (Rate) dated 13.10.2017, no, 43/2017 dated 14.11.2017 and 11/2018- C.T. (Rate) dated 28.05.2018. Now it would be helpful to know the list of items under this category before proceeding further. Kindly refer to the department website for the relevant notification.

 

Government has specified the services to be charges tax under reverse charge mechanism under notification no. 13/2017-Central Tax (Rate) dated 28.06.2017 as amended by notification no. 22/2017 dated 22.08.2018, no. 33/2017 C.T.(Rate) dated 13.10.2017 and 03/2018- C.T. (Rate) dated 25.01.2018 and no. 15/2018-C.T (Rate) dated 26.07.2018. It would be useful to refer to the department’s website for the above notification before proceeding further.

Sub section 4 of Section 9 of the Central Goods and Service Tax, 2017 gives the second condition for charging GST on reverse charge mechanism. According to this sub-section the liability of CGST on the receiver of goods/ service arise if

  • The provider(supplier) of goods/ services is an unregistered person under GST and
  • The supply of goods and service is in the furtherance of business.

 

             The first point is quite self explanatory. However the second point is associated with a clarification. Here is where we shall focus in our further discussion (point 6 of this article).

             However there is a one important amendment to section 9(4) of CGST Act,2017. The Central Goods and Service Tax (Amendment) Bill.2018 No. 31/2018 dated 29.08.2018 the followings were substituted 

“(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of 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 such supply of goods or services or both“

             With this amendment the government may specify the goods and services  vide any notification in respect of  which any registered person shall be liable for CGST under section 9(4) of the CGST Act,2017.  

              You may read through this amendment by following this link.

 

5.Exemption from Central Goods and Service Tax  

Under Notification no. 08/2017 C.T. (Rate) dated 28.06.2017 all intrastate supplies from an unregistered supplier to a registered receiver of goods/ services is exempted from tax upto transaction of Rs.5,000/- per day.

Exemption under reverse charge mechanism

6. Reverse Charge Mechanism for only the furtherance of business

[Clarification in GST master class held on 13.07.2017 press release no. 78/2017 dated 13.07.2017]

            In the GST master class on 13.07.2017 when on the spot question of whether purchase of the old gold jewellery by an unregistered jeweller from a consumer is treated under RCM was raised. As the consumer is getting the consideration for the sale of old jewellery u/s 9(4) the liability of Goods and Service Tax @ 3% appears to fall on the consumer.

            On examination it was clarified that even though supply of goods was from the individual it was not for the ‘furtherance of business’. Hence such supply shall not attract Goods and Service Tax under reverse charge mechanism. The jeweller has the responsibility of paying the tax.

gold jewellery

7.Input Tax credit can be availed by the recipient or the supplier?

            The input tax credit can be availed by the recipient of service if he otherwise eligible. The supplier cannot avail input tax credit in his electronic credit ledger. Clarification of the same is given in [C.B.E & C. Flyer No.12 issued in January 2018].

8. Self invoicing in Reverse Charge Mechanism

            One general question that may arise in your mind is if the service provider is unregistered then who would issue tax invoice for the tax that is payable. Here there is a provision of self invoicing. The recipient of service would raise a tax invoice on himself where RCM under 9(4) is applicable.

9. Compliance required as per Clarification in C.B.E & C. Flyer No.12 issued in January 2018

  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 is payable under RCM or not.
  2. Every registered person has to maintain separate records for the supply of goods attracting tax liability under reverse charge mechanism.
  3. Any tax amount payable under reverse charge mechanism has to be paid by debiting the electronics cash ledger. No payment under RCM can be discharged from the input tax credit.
  4. Invoice level information has to be furnished in table 4B of GSTR-1.
  5. Reverse Charge mechanism is also applicable on the advances given for such supplies. The goods and service tax liability has to be discharged by the person making advance.

In the course of discussion we have missed the reverse charge mechanism concept in IGST, UTGST and SGST. It is to be noted that the concept remains the same however the list of goods/ services where RCM is applicable may vary.

 

The relevant notification for IGST, UTGST and SGST is given below:

 

10. For IGST

            Under Section 5(3) of the Integrated Goods and Service Tax Act, 2017 the goods and services are notified where reverse charge mechanism is applicable in inter-state supplies. The list of goods is contained in notification no. 04/2017 Integrated Tax (Rate) dated 28.06.2017 services is contained in notification no. 10/2017 Integrated Tax (Rate) dated 28.06.2017 as amended from time to time.

            Section 6(1) of the Integrated Goods and Service Tax Act, 2017 states the exemption given to any registered person receiving supplies from an unregistered supplier from paying tax under reverse charge mechanism. This provision is applicable till 30.09.2019.

 

UTGST and IGST laws are analogous to the CGST laws. So we would rather not go into details in this discussion. However you may follow this link for ready reference.

http://www.cbic.gov.in/htdocs-cbec/gst/index

11. Further the list of similar laws in CGST, IGST and UTGST

Sl. No.

CGST Act,2017

IGST Act,2017

UTGST Act,2017

1

Section 9(3)

Section 5(3)

Section 7(3)

2

Section 9(4)

Section 5(4)

Section 7(4)

3

Notf. No. 04/2017 C.T.(Rate)dt:28.06.2017

Notf. No. 04/2017 I.T.(Rate) dt: 28.06.2017

Notf. No. 04/2017- U.T. (Rate) ,dt. 28-06-2017

4

Notf. No. 13/2017 C.T.(Rate) dt:28.06.2017

Notf. No. 10/2017 I.T. (Rate) dated 28.06.2017

Notf. No 13/2017-U. T. (Rate),dt. 28-06-2017

12. You may also refer the following sites for further reading

  1. https://www.taxmann.com/blogpost/2000000045/what-is-meant-by-reverse-charge-mechanism-in-gst.aspx
  2. http://www.cbic.gov.in/
  3. https://taxguru.in/goods-and-service-tax/reverse-charge-mechanism-gst-analysis.html

Your comments for improving the content is most valuable. So feel free to comment below

Get to know the complete list of services falling under Reverse Charge Mechanism

Learn about valuation in GST from this link

Also check out post on supply

You may also like to read about Works Contract Service under GST. Follow this link.

You may also look how reverse charge works for E Commerce model