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:

Who are liable to take registration? (Section 22 of Central Goods and Service Tax, 2017)
Who need not get registered in Goods and Service Tax?
Compulsory registration
Procedure for registration
Distinct Person concept:
Voluntary registration:
Deemed Registration:
Cancellation of registration:
Input Tax Credit reversal on cancellation of registration
Status of liability on cancellation of registration
Revocation of application
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

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

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.
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.
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.

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.
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).

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

Persons making interstate taxable supply.
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.
A person who pays tax under reverse charge mechanism should get registered irrespective of his turnover in any financial year.
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.
Any non-resident taxable person making taxable supply.
Any person who deduct tax at source under the provisions of Section 51 of Central Goods and Service Tax Act, 2017.
Input Service Distributor has to take compulsory registration to distribute input tax credit.
Person who supply goods or services through electronic commerce operators who are required to collect tax at source under section 52 of the Act.
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).
Person supplying online information and database access retrieval service from outside India to a person in India who is not registered.
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

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.
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:

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.
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:

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.
If the constitution of the business has been changed then the old GST registration has to be cancelled.
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.
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.
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.
Any person who taken voluntary registration but has failed to commence his business within 6 months from the date of registration.
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

May 1, 2019July 14, 2019

Common mistakes about casual taxable person in GST corrected

Topics

Definition of casual taxable persons
Example 1
Example 2
Casual Taxable person vs IGST
Another Example
Procedure for registering as a casual taxable person
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.

April 21, 2019April 6, 2020

E Way bill- A better way to compliance

Topic

Introduction
Who has to carry e-way bill?
Who will generate E way Bill?
Exemptions in carrying e way bill
Generation of E-way bill
Documents to be carried while movement of goods
Value included in the e way bill
Validity of e way bill
Extension of validity of e way bill
Cancellation of E Way Bill
Notification 2 to 6/2018 UTT dated 31.03.2018
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?

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.
Transporter may also generate E way bill based on information received from supplier/ recipient.
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.
An unregistered person who is causing movement of goods has an option to generate E way bill.
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

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

This includes

LPG supplies to household and non domestic exempted category customers.
Kerosene oil sold under PDS.

Postal Baggage transported by Department of Post.

Natural or cultured pearl and precious and semiprecious stones, precious metals and metals clad with precious metals.
Jewelry, goldsmith and silversmith’s wares and other articles in chapter 71.
Currency

Used personal and household effects.
Coral- unworked / worked.

Transportation of goods by non motorized conveyance.
Transportation of goods from port, airport, air cargo complex and land customs station to Inland Container Deport or Container Freight Station.
Movement of goods within area notified under Rule 138(14)(d) of the GST Rules of the state concerned.
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.
Alcoholic liquor for human consumption, petroleum crude, high spirit diesel, motor spirit (petrol), natural gas or aviation turbine fuel.
Goods in Schedule III of CGST Act, 2017 which has been declared as no supply.
Goods transported under custom bond and supervision of ICD, CFS, port, airport, customs station etc. under Customs seal.
Transit cargo from or to Nepal or Bhutan.
Where goods are exempted under relevant notification.
Movement of goods under defense under Ministry of Defense as consignor or consignee.
Transport of empty cargo containers.
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.
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

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

Process of generation:

Go to the GSTN portal where E way bill could be generated prior to movement of goods.
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.

E way bill will be generated on submission of information as given above.

Documents to be carried while movement of goods

Invoice/ Bill of supply/ delivery challan.
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

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.
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

April 10, 2019May 26, 2020

Supply in GST- What is supply?

Topics covered

Introduction to Supply in GST
Definition of supply in GST
Deemed Supply in GST
Declared Supply
Negative list
Zero rated supply
Composite Supply
Mixed Supply
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

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.
Import of services even if cause without furtherance to business.
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.

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.
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.
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.
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.

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-

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.
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.
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.
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

Any transfer of title of goods is a supply of goods. For example sale of goods.
Any transfer of rights in goods or undivided share of goods without the transfer of title of goods is supply of services.
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.
Land and Building
Any lease, tenancy, easement, license to occupy land is supply of services.
Any lease or letting out of building including commercial, industrial or residential complex for business or commerce is supply of services
Treatment or process
Any treatment or process applied to other persons goods is deemed as supply of services.
Transfer of assets
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.
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.
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
The business is transferred as a going concern.
The business is carried on by personal representative who is a taxable person.
Supply of services
Renting out of any immovable property.
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.
Temporary transfer or permitting the use of intellectual property rights shall be supply of services.
Any development, design, programming , customization, adaptation, upgradation, enhancement or implementation of information technology software shall be supply of service
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.
Transfer of rights to use any goods for any purpose for cash, deferred payment or other consideration is supply of services.
Composite supply
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.
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.
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

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.
Services by any court or tribunal established under any law for the time being in force are not taxable.
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.
Service rendered in funeral, burial, crematorium or mortuary including transportation of the deceased.
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
Any actionable claim excluding lottery, betting and gambling.
Supply of goods from one non taxable territory to another non taxable territory without goods entering into India.
Even supply of warehoused goods to any person before clearance for home consumption is included in this list.
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 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 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.

April 7, 2019May 25, 2020

Valuation in GST: A complete guide

Topics covered under valuation in GST

Introduction to Valuation in GST
Valuation for taxation
Related party transactions
Who are related parties?
Non monetary Consideration
Inclusions in the Valuation
Exclusions from the valuation
Valuation in case of Pure agents
Valuation for buying and selling second hand goods
Value of service on Air Ticket booking
Valuation in case of Insurance business
Conclusion
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.

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.
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.
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

Related persons are officers or directors of both the companies
Such a person may be legal partners.
Such persons are employers or employee.
One of them is directly or indirectly in control of the other.
One such person directly or indirectly controls or holds at least 24% voting shares or stocks.
Both of them are controlled by a third party/ person.
Together they directly or indirectly control a third person.
They are members of the same family.
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

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.
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/-)
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.
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

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.
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.
Any incidental expense in relation to sales like packing, commissioning, loading and unloading, etc.
Subsidies linked to supply except Government subsidies shall be included in the value.
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

Such discounts are part of the agreement before the actual supply has occurred and is indicated in the invoice.
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

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.
Here the supplier indicates in his invoice the payment made by him as a pure agent on behalf of the recipient .
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.
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

For domestic booking – 5% of base fare.
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

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

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