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Complete list of Services under Reverse Charge Mechanism

This post describes the list of services under Reverse Charge Mechanism (RCM) . In the discussion below the points from 1 to 19 are as per section 9(3) of Central Goods and Service Tax Act, 2017 (CGST Act, 2017). Points 20 and 21 relates to the provisions of Integrated Goods and Service Tax Act, 2017 (IGST Act, 2017) . This is the complete and updated list as on March 2020.

 

 In all the below mentioned cases the liability of tax arises on the recipient of service and hence the tax is payable by him. For the easy reference of the readers clickable list items are created below.

reverse charge me

 

 

  1. Supply of Services by Goods and Transport Agency
  2. Supply of service by advocates
  3. Supply of service by arbitral/ tribunal
  4. Supply of Sponsorship Service
  5. Services provided by Central Government, State Government, Union Territory or Local Authorities excluding some specified services
  6. Renting of immovable property service provided by Central Government, State Government, Union Territory or Local Authorities
  7. Service provided by the way of transfer of development rights or Floor Space index
  8. Service by director of a company/ Body Corporate
  9. Service by an insurance agent to any person carrying insurance business
  10. Service by a recovery agent to banking company or financial institution or non banking financial company
  11. Supply of service by music composers, photographer, artists etc.
  12. Supply of service by an author
  13. Supply of service by members of Overseeing Committee to Reserve Bank of India
  14. Service by an Individual Direct Selling Agent (DSAs) to any banking or Non Banking Financial Company (NBFC)
  15. Service by a Business Facilitator (BF) to a banking company
  16. Service provided by an agent of Business Correspondent (BC) to Business Correspondent (BC):
  17. Security Services
  18. Service by the way of renting of motor vehicle
  19. Lending of securities under Securities Lending Scheme, 1997 of SEBI (Security Exchange Board of India) as amended
  20. Import of Service
  21. Service provided by the way of transportation of goods by vessel outside India up to customs station

1.Reverse Charge Mechanism on supply of Services by Goods and Transport Agency –

Goods Transport Agency

Type of service:

                Transportation of Goods by road to –

  • any factory governed by the Factory Act 1948.
  • any society registered under the Societies Registration Act,1860
  • any cooperative society established by or under any law
  • any person registered under CGST, SGST or IGST
  • any body corporate established under any law
  • any partnership firm whether registered or not under any law
  • any casual taxable person.

Supplier of service:

Goods Transport Agency who has not paid CGST, SGST or IGST for the said service

Recipient of Service:

  • Any factory governed by the Factory Act 1948 to who receives the said service.
  • Any society registered under the Societies Registration Act,1860 who receives the said service.
  • any cooperative society established by or under any law
  • any person registered under CGST, SGST or IGST
  • any Body Corporate established under any law
  • any partnership firm whether registered or not under any law
  • any casual taxable person.

Note: At times situation confuses in determining the recipient of service (the sender of goods or receiver of goods). Here the person who makes the payment to the Goods Transporter is generally considered as the recipient and tax liability is borne by him.

2. Reverse Charge Mechanism on supply of service by advocates

Type of Service:

Individual advocate or firm of advocate provides legal services. These legal services are taxable supplies taxed under RCM (Reverse Charge Mechanism). These legal services include legal advice, legal consultancy, legal assistance, representational service before any court/ tribunal etc.

Supplier of Service:

Individual Advocates or firm of advocates supply these services.

Recipient of Service:

Any business entity located in the taxable territory of India receives these services.

3. Reverse Charge Mechanism (RCM) on Supply of service by arbitral/ tribunal

Type of Service:

Any service provided by an arbitral or tribunal is considered under RCM (Reverse Charge Mechanism)

Supplier of Service:

Arbitral or Tribunal provides any service.

Recipient of Service:

Any business entity located in the taxable territory.

tribunal

4. Reverse Charge Mechanism on supply of Sponsorship Service

Type of Service:

The supplier provides Sponsorship service is this case.

Supplier of Service:

Any person may provide the sponsorship service

Recipient of Service:

Any Body Corporate or partnership firm located in taxable territory of India receives the supply

5. Services provided by Central Government, State Government, Union Territory or Local Authorities excluding some specified services

Type of Service:

Reverse Charge Mechanism (RCM) applies to any service provided by the government excluding the following services

  • Renting of immovable property (explained in next section) and
  • The below mentioned services

Supplier of Service:

Government – Central Government/ State Government/ Union Territories / any local authority supplies such services

Recipient of Service:

Any Business Entity in the taxable territory receives such services

6. Renting of immovable property service provided by Central Government, State Government, Union Territory or Local Authorities

Type of Service:

Renting of Immovable property is the service provided by the supplier.

Supplier of Service:

Government – Central Government/ State Government/ Union Territories / any local authority supplies such services

Recipient of Service:

The service is received by any person registered under the CGST Act 2017(Central Goods and Service Tax Act, 2017)

7.Service provided by the way of transfer of development rights or Floor Space index

Type of Service:

The provider of service provides the service in form of transfer of development rights or floor space index

Supplier of Service:

Any person may be the supplier who provides the development rights or floor space index for any activity.

Recipient of Service:

Promoter undertaking the task after receiving such development right or floor space index is  the recipient of service.

8. Service by director of a company/ Body Corporate

Type of Service:

The director provides service to a company where he has assumed directorship. Reverse Charge Mechanism is applied on such services. However if the director provides any service to the company while being in employer-employee relationship with the said company, then taxability under Goods and Service Tax Act 2017 does not arise.

Supplier of Service:

Director is the supplier or service.

Recipient of Service:

The company or any Body Corporate where he has assumed directorship is the recipient of service and is thus liable to discharge tax.

9. Service by an insurance agent to any person carrying insurance business

insurance agent, reverse charge mechanism

Type of Service:

The insurance agent provides service to a person carrying insurance business

Supplier of Service:

Definitely the insurance agent is the supplier of service.

Recipient of Service:

The person located in taxable territory, carrying insurance business and getting service from the insurance agent is the receiver/ recipient or service.

10. Service by a recovery agent to banking company or financial institution or non banking financial company:

Type of Service:

A recovery agent supplies services to the banking company or financial institution or non banking financial company.

Supplier of Service:

 The recovery agent supplies the service.

Recipient of Service:

The banking company, Non-banking Financial Institutions or any other financial institution receives the service.

11. Supply of service by music composers, photographer, artists etc.:

Type of Service:

Music Composers, photographers and artists may transfer or permit the use of the copyright present in their name under the Copyright Act, 1957 relating to their artistic work to Music Company, producer, etc.

Supplier of Service:

The Music Composer, photographer or artist who transfer or permits the use of copyright is the supplier.

Recipient of Service:

Music Company, producers etc who make use of the copyright privilege are recipient of service.

music composer, lawbanyan

12. Reverse Charge Mechanism on supply of service by an Author:

Type of Service:

An author may transfer or permit the use of the copyright present in their name under the Copyright Act, 1957 relating to original literary work to any publisher.

Supplier of Service:

The author who transfer or permits the use of his literary work is the supplier.

Recipient of Service:

The publisher who uses the literary work of the author is the recipient of service.

13. Supply of service by members of Overseeing Committee to Reserve Bank of India:

Type of Service:

Any service provided by the member of the Overseeing Committee.

Supplier of Service:

In such cases the Overseeing Committee members are supplier for the purpose of taxation.

Recipient of Service:

RBI (Reserve Bank of India) is the recipient of service.

14. Service by an Individual Direct Selling Agent (DSAs) to any banking or Non Banking Financial Company (NBFC)

Type of Service:

Services provided by individual Direct Selling Agents (DSAs) to any banking or Non Banking Financial Company (NBFC).

Supplier of Service:

The individual Direct Selling Agents (DSAs) are supplier in this case. It is to be noted that these  DSAs shall not be any Body Corporate or partnership firm in order to come under the ambit of Reverse Charge Mechanism.

Recipient of Service:

The Banks or Non Banking Financial Company (NBFCs) is recipient for the above service provided they are located in taxable territory.

15. Service by a Business Facilitator (BF) to a banking company.

Type of Service:

The Business Facilitator provides Business Facilitation service.

Supplier of Service:

Business facilitator is the supplier.

Recipient of Service:

A banking company located in the taxable territory is the recipient of service.

16. Service by an agent of Business Correspondent (BC) to Business Correspondent (BC):

Type of Service:

An agent of Business Correspondent provides services to the Business Correspondent (BC)

Supplier of Service:

The agent of Business Correspondent is the provider/ supplier of service.

Recipient of Service:

A Business Correspondent in taxable territory availing the services from the agent is the recipient.

17. Reverse Charge Mechanism on Security Services:

security, reverse charge mechanism

Type of Service:

Security service is provision of service by the way of supply of security personnel to registered personnel. However the concept of RCM (Reverse Charge Mechanism) does not apply to the following persons:

a)The Department of Establishment of Central or State Government, local authority or government agencies who are registered merely for deduction of TDS u/s 51 but are not the provider of services.

b) Any person, providing the service, who is registered under Composition Scheme in section 10 of the CGST, 2017(Central Goods and Service Tax Act, 2017).

Supplier of Service:

The person providing the security personnel is provider of service. The provider should not be a Body Corporate for the applicability of RCM (Reverse Charge Mechanism).

Recipient of Service:

Any registered person in the taxable territory can be a recipient of security services.

18. Reverse Charge Mechanism on service by the way of renting of motor vehicle

Type of Service:

This service includes renting of motor vehicle to Any Body corporate by a person who is paying tax and eligible to avail Input Tax Credit.

Supplier of Service:

Any person who rents motor vehicle to Any Body corporate and is eligible to avail Input Tax Credit can be the provider of service.

Recipient of Service:

Any Body Corporate located in taxable territory of India can be the receiver of service.

19. Lending of securities under Securities Lending Scheme, 1997 of SEBI (Security Exchange Board of India) as amended:

Type of Service:

The Service of lending of securities under Securities Lending Scheme, 1997 of SEBI (Security Exchange Board of India) is taxable under RCM (Reverse Charge Mechanism).

Supplier of Service:

The lender of securities is the supplier of service. To be more specific the lender deposits the securities which he/she holds with a intermediary for the purpose of lending under the Securities Lending Scheme, 1997 of SEBI (Security Exchange Board of India).

Recipient of Service:

The Borrower of security is the recipient. Borrower is the person who borrows the money under the Securities Lending Scheme, 1997 of SEBI (Security Exchange Board of India).

20. Reverse Charge Mechanism on Import of Service:

Type of Service:

A person outside the taxable territory provides any service to any person located in taxable territory of India. Such type of services falls under the concept of Reverse Charge Mechanism (RCM).

Supplier of Service:

A person outside the taxable territory of India is the supplier of service.

Recipient of Service

Any person located in taxable territory of India excluding the non taxable online recipient is the recipient of service.

21. Service provided by the way of transportation of goods by vessel outside India up to customs station:

Type of Service:

This service includes service provided by the way of transportation of goods by vessel outside India up to customs station.

Supplier of Service

Any person located in nontaxable territory is the supplier.

Recipient of Service

The Importer of Goods as defined in the Customs Act, 1962 is the recipient of service.

Also learn about the concept of valuation  in GST.

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E invoice: Looking at future

The Read about E invoicing / E invoice in Hindi/हिन्दी

1) Introducing E-Invoicing (E Invoice)?

With the improvement of technology it becomes important that benefit for such advancement could be taken to improve every sector of economy and governance. Here we are talking about governance and better regulation for the tax collection system of India. The Government has launched the E invoicing system for certain classed of registered taxpayers. It is basically a process of uploading an invoice in the GSTN (Goods and Service Tax Network)and automating various activities related to GSTN like the tracking and generation of E way bill, filling in of GST returns, transfer of Input Tax Credit from supplier to receiver, etc. The process will get clearer as you go through the post and learn the concept in detail.

E invoicing

 

2) Relevant Provisions for E invoice System.

                The process of generation of invoice is done as per Rule 48 of Central Goods and Service Tax Rules, 2017. Certain modification (amendment) has been done to this rule to incorporate the concept of E invoicing. Notification 68/2019 CT to 72/2019 CT dated 13/12/2019 are the relevant notification. We will learn about the provisions and all the changes made in the CGST Rules (Central Goods and Service Tax Rules, 2017) with the effect of the above notifications in the coming topics. For now let us learn the basic steps in E-Invoicing.

3) Process for generating E Invoice.

Step 1

Generation of invoice: The invoice should be generated following the general rules for generating the invoice in PEPPOL (Pan European Public procurement online) standard. An ERP software may be used which is also able to generate the invoices in JSON format.

Step2

Uploading the invoices in IRP (Invoice Registering Portal ):  The invoices generated in JSON format should be uploaded to the IRP i.e. Invoice Registering Portal. Three methods can be used to upload the JSON to the IRP – API based, Web based and SMS based.

Automation in invoicing system in GST

Step 3

Validation of the invoice details: The IRP (Invoice Registering Portal) will validate the details on the invoice and further check of any duplication based on four parameters –Seller GSTIN, Invoice Number, Financial Year and Document Type(Invoice/Credit Note/ Debit Note).

Step 4

Generation of Invoice Reference Number/QR code/ Email : After validation the IRP generates the Invoice Reference Number for reference. The IRP digitally signs the invoices and produces QR code for invoices in JSON format. The system then sends a email to the supplier informing him the generation of E- Invoicing.

Step 5

Automation of GST returns and E way bill portal: The IRP sends the information of the invoices to GST portal for filling up the details of GST returns and to the E way bill portal for filling up of E way bill details.  Now if we try to generate the E waybill for the invoice Part A will be prefilled as a result of this automation.

Invoice in IRP

4) Who should generate E invoice?

E Invoicing is made applicable for the taxpayers whose annual turnover (across all GSTINs across India connected to a single PAN (Permanent Account Number)) is more than Rs.100 crores. At present it is for invoices in B2B (Business to Business) transactions only and for the supply from one registered person to other registered person.

5) Software Preparedness for generating E invoice :

The businesses who have to use E Invoicing systems must equip themselves with the compatible software. These requirements may be discussed under the following points.

First:

The ERP Software like SAP/Tally/etc that are used for generating Invoices should follow the PEPPOL (Pan European Public procurement online) standard. This is the most commonly used standard for businesses across the world. The standard required the UBL (Universal Business Language) version of E-XML (Electronic XML)

 Second:

The ERP software should be able to generate all the invoices in JSON format as the IRP can process the data in JSON format.

Third:

The user should have interacting software/ system to interact with the IRP (Invoice Registering Portal). The same can be reached through web based, API based, SMS based, Offline tool based, Mobile app based, etc. The government has notified a list of links that can be used to access the IRP.

Fourth:

The supplier may have a QR reader to access the QR code generated by the IRP.

6) Advantages of E Invoicing system (E Invoice)

As we are moving to the next level of generating invoices let us first understand the advantages of using it.

First:

The automation brought by this system is one obvious thing that cannot be missed. Presently the returns have to be filled manually and filling of details in the E way bill also require manual effort of your accounting persons. Now both to a certain extent are populated automatically.

Second:

With this the matching of ITC (Input Tax Credit) has simplified to a certain extent. In the present system the invoices generated by the supplier has to be entered into the GSTR 1 and the same ITC is available to the receiver in GSTR 2A. Many a times it happens that the supplier misses few invoices and consequently the receiver does not get the available ITC. Now with E invoice the IRP (Invoice Registering Portal) sends the data to the GSTR-1 and E way bill simultaneously. So the system never misses any invoice for which E way bill is generated .

Third:

This system reduces manual error in uploading details of the invoices to a great extent.

Fourth

It will be easier for the department to identify any mismatch in invoice in a way better than the present system. This will improve their efficiency. Further the cases of fake invoicing could be easily identified and timely actions could be taken.

7) Common myths debunked regarding E invoice :

First:

The most common myth is that it is applicable to all the taxpayers. However at present only B2B invoices of companies with turnover of Rs.100 crores or more has to generate E invoice as per notification 70/2019 CT dated 13/12/2019. The receiver of supply is also a registered person.

Second:

This is the most common misconception. Most people think that from now on the invoices will be generated through GSTN portal. However as we have seen that the invoices would be generated through ERP software and the details have to be uploaded in IRP system to generate the Invoice Reference Number.

Invoice

8)Way ahead

The government has taken a great step to automate the invoicing system. This evolution in the taxation with the aid of technology is most welcome for the advantages it will bring with it in terms taxpayer convenience and better governance in taxation. There may be technical or implementation difficulties in the beginning but the industry and the government will surely overcome it with mutual cooperation and trust. It is just a matter of time when the system will be extended to other classes of taxpayers and the fruit of such advancement could be reaped by everyone.

 

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Goods and Service Tax in Food Sector: Tax on the platter

Topics

1.Importance of indirect tax or the Goods and Service Tax in food sector for the Indian economy

2.Types of supplies in Food Industry based for the purpose of GST

3.GST in supply of food products

4.Definition of Branded food products

5.Goods and Service Tax in Food related services

6.GST on Food catering service by IRCTC (Indian Railway Catering and Tourism Corporation)

7.Composite Service

8.Mixed supply in Food

9.Composition Scheme in restaurant industry

10.Conclusion

1. Importance of indirect Tax or Goods and Service Tax in food sector for the Indian economy

Indirect tax has always been very important for every industry. However its importance for the food industry is far more important for a developing and populous country like India where the number of mouths to feed outnumbers most of other countries. It is often seen that change in the rate of indirect taxation directly affects the purchasing power of the people living in India where a considerable portion of demography thrives below poverty line. So it is quintessential for the industry to understand the taxation. This will enable industry people to manage the taxation in efficient and cost effective way. The topic of this post is Goods and Service Tax in food industry of Indian Economy. It covers topics related to food products as well as food related services.

Food Sector

2. Types of supplies in Food Industry based for the purpose of GST

Where Goods and Service Tax is concerned the supply can be broadly classified into

  1. Supply of Food Products
  2. Supply of Food related Services

Further Supply of Food Products can be classified as

  1. Branded food products
  2. Un-branded food products

Supply of Food related services can be categories as

  1. Hotel service
  2. Restaurant Service
  3. Catering Service

You shall go through each and every category mentioned and study about the different tax rates prevalent.

3.Goods and Service Tax in food products’s supply

There are varying rates of Goods and Service Tax in food products ranging from 0 % to 28%. There are many items like milk, curd, flour, eggs, oilseed etc. which are basic items for everyday life. They do not suffer any GST. However items such as cocoa chocolates, churan for pan, custard powder, etc are charged 28% of GST. You may go through the list of food items along with applicable GST rates from the .pdf file . However here we are to see the spirit of law while deciding these rates. It aim to make the essential food items GST free and charge high on items which are negative or more of a luxury for people. Now this also brings us to another distinctions within same food product- branded and unbranded. The government aims to charge less GST for the unbranded items. This may be to bring a level playing field and to support the local unbranded food product against the branded products. For example paneer is charged 5% of GST when branded and 0% when unbranded.

4.Definition of Branded food products

The most intuitive definition would be a name which is uniquely associated with a product or service – food product or service in this case. Here in our case the government felt the need to define it in another way just to tackle an unexpected situation in the industry. Every one desires more business and more money. So why to pay more tax when you can sell the same items without a brand and pay lesser tax. After all that extra money is coming into your pocket. This was a practice once. Most of the brands started to deregister their brand name.

However government was quick to figure out what was going on and to curb such a practice it came out with a press release dated 20.09.2017. It clearly stated that a brands registered on 15.05.2017 shall be considered deemed registered even if they are subsequently deregistered. Let us see the criteria which make a product branded after the press release.

a)A brand registered as on 15.05.2017 shall be deemed to be a registered brand for the purposes of levy of 5% GST, irrespective of whether or not such brand is subsequently de-registered.

b) A brand registered as on 15.05.2017 under the Copyright Act, 1957 shall also be treated as a registered brand for the purposes of levy of 5% GST.

c) A brand registered as on 15.05.2017 under any law for the time being in force in any other country shall also be deemed to be a registered brand for the purposes of levy of 5% GST.

d) A mark or name in respect of which actionable claim is available shall be deemed to be a registered brand name for the purposes of levy of 5% GST.

You may refer to the list of items in the food-product-wise_gst_rates .pdf file to find out the GST rates for branded and unbranded version of the same product.

5.Goods and Service Tax in Food related services

As we have already discussed there are three types of services

  1. Hotel Service
  2. Restaurant Service
  3. Catering Service

Hotel Service– For restaurants located in hotels the distinction is based on the declared tariff charged for the rooms in that hotel. If the tariff charged for the room is more than or equal to the threshold of Rs.7500/- per day/night then 18% of the Goods and Service Tax is levied on food service associated with restaurants in that hotel. However Input Tax Credit shall be available on providing such supplies. For the restaurants in hotels with rooms having declared tariff less than the said threshold then a lower rate of 5% shall be applicable without input tax credit.

One important thing to note is that it is the declared room tariff you should be concerned for while deciding on the rate of GST. Let us take an example.

Suppose Mr. X went to a hotel where the room rent for 1 night was fixed at Rs. 7500/-. However on negotiation the manger agreed to take Rs. 7200/-.The very same day of his stay in the hotel he went to the restaurant attached to the hotel for having his dinner. In this case what do you think the rate of GST applicable on his restaurant charges -5% or 18%. It would be 18 % as the declared value of room tariff  is Rs.7500/- and this rate is basis of determining his liability in Goods and Service Tax.

Restaurants – Restaurants are those businesses which are meant for cooking and serving food within its eating enclosure. In provisions of supplies of services by such restaurants a flat rate of 5% is applicable. Only input tax credit on provision of such services could not be availed.

Catering Services– Catering service are another kind of food supplies where foods are supplied at designated place on contract for a specific requirement. You may have taken the service from a food supplier for a birthday party, marriage and other such occasions. A rate of 18 % of GST prevails for such services.

6.GST on Food catering service by IRCTC (Indian Railway Catering and Tourism Corporation)

The GST rate for the food supplied in Indian Railways by the IRCTC is 5% without input tax credit.

7.Composite Service-

The mention of composite service in case of hotels with room service is one such case which is the cause of confusion for GST calculation. Many a times the hotels provide lunch/ dinner in rooms of the guest with the hotel package. In such a case the food service is a service composite with the hotel service. Here the hotel service is the dominant service. Hence the rate applicable on both the food service and hotel service shall be the GST rate applicable on the hotel service.

8.Mixed supply under Goods and Service Tax in Food sector

You may have seen during festivals when the shops sell packets where a whole bundle of different items ranging from sweets, dry fruits, chocolates, a flower bouquet and a beautiful teddy bear toy. If the thought of GST rates applicable on such a package has hit you, the most intuitive reply would be to calculate the GST on every item separately. However that would be incorrect. Such supplies are mixed supply where a whole range of food items with varied GST rates are supplied in a package and there is no dominant supply (item). The applicable GST in these cases shall be the highest rate applicable on any items that forms the part of that package.

9.Composition Scheme in restaurant industry

The restaurants opting for the composition scheme shall pay the GST at the rate of 5% of the value without availing any input credit. The following conditions needs to be fulfilled to opt for composition scheme.

  1. The annual turnover shall be less than Rs. 1.5 crores in normal states and Rs. 1 crores in special states.
  2. The input tax credit on the input supplies shall not be availed to get the benefit of composition scheme.
  3. There should not be any inter- state supplies.
  4. The restaurant shall not make any supplies through any e- commerce operator.
  5. The business should be a permanent business and no temporary arrangement. Further the restaurant shall not engage in any business other than restaurant service.
  6. The restaurant shall not make any exempt supply.
  7. The most important thing is the restaurant shall not collect any tax from its customers.

10.Conclusion

Food being an important sector of Indian economy the rate of GST is an important thing to determine the purchasing power of people. The business shall also keep important note of the tax they are paying. Beside a round of appreciation for the framers of the law where certain food related service are treated as sin and higher tax rates are imposed.

Feel free to give suggestion at lawbanyan@gmail.com

You may also read about Audit in GST 

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Filing FORM GSTR 9C: A step by step guide

Topics

  1. Introduction
  2. What is GST Audit Form?
  3. Is it mandatory to file FORM GSTR 9C?
  4. Who should file and certify FORM GSTR 9C?
  5. Is interest and penalty payable on identification of additional tax liabilities during filing the audit form?
  6. Process of filing GSTR 9C
  7. Conclusion

 

Introduction

This is a great leap on the path of self assessment by the tax payers. It is yet to be seen how the audit in GST looks like. However we have brought for you a step by step guide on how to file the GST Audit Form(GSTR 9C). You might want to know who can file this form. Is it mandatory to file it? There may be other questions in your mind. You can expect to solve all your doubts related to this topic in this post. So let us start.

What is GST Audit Form?

GST audit by the professionals is basically a reconciliation of accounts of the taxpayer. All the figures declared by the taxpayer in returns GSTR 9, 9A, and 3B and audited Annual Accounts Statement is reconciled and certified by the professionals. This reconciliation has to be filed in FORM GSTR 9C. This form is an indicator for the tax authorities to find the correctness of the figures present in the returns of the registered person.

Is it mandatory to file FORM GSTR 9C?

All the taxpayers who have their annual turnover more than Rs. 2 crores have to mandatorily file GSTR 9C and submit their audited annual accounts to the tax department.

Who should file and certify FORM GSTR 9C?

FORM 9C is filed based on verified accounts and annual statement of the tax person. The details have to be filed and certified by a professional Chartered Accountant or a CMA.

Is interest and penalty payable on identification of additional tax liabilities during filing the audit form?

Only interest is applicable. Penalty is applicable when the same points are identified by the tax department. So it is better to conduct this audit in a transparent manner.

Process of filing GSTR 9C

GSTR 9C has two parts:

 

Part A is Reconciliation Statement

Part B is Certification by professionals

Part A: Reconciliation Statement looks as the screen shot given below. Part 1 of Part A of Reconciliation statement contains basic details like:

  • Financial year – The year of which the details are provided in the form.
  • GSTIN of the taxpayer- It is the GSTIN number of the taxpayer whose data is being analyzed.
  • Legal Name of Registered person- The taxpayer must give his legal name. This is the name with which he has registered his company.
  • Trade Name- There are entities who use one name for his trade but are registered in some other name. This is the name which the company uses while in trade.

Part 2 of the reconciliation statement contains the actual reconciliation of the Annual Returns (FORM GSTR 9) with that of the Audited Annual Financial Statement of the taxpayer. Let us discuss all the fields mentioned in this part in a step by step way.

  • 5.Reconciliation of Gross Turnover
  • .5A.Turnover (including exports) as per audited financial statements. Here one this to note is the turnover is related to the State or Union Territory to which the GSTIN number of the taxpayer is mapped to. In usual case where an entity has presence over multiple states the Annual Financial Statement is consolidated for the entire business. In such cases the taxpayer is required to internally derive the turnover for that state or union territory and fill up the value. Not to mention that this value should also include the export turnover.
  • .5B.Unbilled revenue at the beginning of the financial year –There are times where some revenue which were recorded earlier in the previous financial year are not part of the turnover of the Annual Financial Statement but GST is payable in the present financial (year under assessment). Such value needs to be declared in this field.
  • .5C.Unadjusted advances at the end of the financial year –There are situations where the GST on advances are paid but they are not recognized as revenue in the Annual Financial Statement. Declare such values over here. For example for construction industry certain advances are received from the clients year on year as the development work progress. In Annual Financial Statement such revenue are treated as work in progress and does not figure in the turnover of the company until the entire construction is over.
  • .5D.Deemed Supply under Schedule I – There are certain items which are present in schedule I which are considered as deemed supply. Goods and Service Tax are levied on such activities and value of such supplies is declared in this field.
  • 5F.Credit Note issued after the end of the financial year-There is a possibility that credit notes are issued after the financial year is over but the supply has taken place in this financial year. Values of such credit notes are declared here.
  • .5G.Turnover of April 2017 to June 2017 – If the Financial Year is 2017-18 then the turnover for the period April 2017 to June 2017 has to be declared so that while assessing the taxable amount such amounts which are beyond the GST period can be omitted.
  • .5H.Unbilled revenue at the end of the financial year– Some unbilled revenue on which tax may be payable in the next financial year but is part of revenue in the current Annual Financial Statement has to be declared here. This value is deducted from the turnover while calculating the taxable value for the taxpayer
  • .5I.Unadjusted advances at the beginning of the financial year- Value of all the advances where GST has not been paid in the current financial year but is recognized as revenue in the Annual Financial Statement.
  • .5J.Credit Note accounted for the Audited Financial Statement but is not permissible under GST- This is the aggregate value of credit notes which is part of the Annual Financial Statement but is not admissible under Section 34 of CGST Act,2017.
  • .5K.Adjustment on account of supply of goods by SEZ units to DTA units.- If you are an SEZ unit and have made supply to any DTA unit then such supplies are not taxable in GST. You are required to declare value of such supplies over here. While calculating taxable value this value is deducted.
  • .5L.Turnover of the period under composition scheme– A taxpayer may partially pay tax under composition scheme and partially under normal tax structure. The turnover of the entity under composition scheme has to be deducted from the turnover to arrieve at the taxable value in FORM GSTR 9. So this value is declared in this field.
  • .5M.Adjustment in turnover under section 15 and rules thereunder-This is the difference between the reported turnover in the Annual Financial Statement and the turnover reported in the Annual GST returns (GSTR 9 ) due to difference in the value of supply.
  • .5N.Adjustment of turnover due to foreign exchange fluctuation: This is the difference between the reported turnover in the Annual Financial Statement and the turnover reported in the Annual GST returns (GSTR 9 ) due to foreign exchange fluctuation.
  • .5O.Adjustment of turnover for reason not listed above: This is the difference between the reported turnover in the Annual Financial Statement and the turnover reported in the Annual GST returns (GSTR 9) due to any other reason which is not listed above.
  • .5P.Annual turnover after adjustment as above- This is an auto populated field which is calculated from the values declared above. It is calculated as5P= 5A+5B+5C+5D+5E+5F-5G-5H-5I-5J-5K-5L(+/-)5M(+/-)5N(+/-)5O
  • 5Q.Turnover as declared in Annual Returns (GSTR 9): Annual turnover as declared in GSTR 9 is declared here. It is calculated from the values declared in Sr. No. 5N, 10 and 11 in FORM GSTR 9.
  • 5R.Un-reconciled turnover (Q-P): This field shows the difference between the value of 5P and 5Q. The reason for such difference is to be stated in the next section.
      • 6.Reason for un-reconciled difference- The reason of un-reconciled amount as indicated in 5R is to be presented over here.
      • 7.Reconcillation of Taxable turnover- Till this stage we have data to arrive at the total taxable output of the taxpayer. Now further data are required for arriving at the taxable turnover of the taxpayer.
        • 7A Annual Turnover after adjustment – This field is auto populated from the figure generated in field 5P.
        • 7B.Value of exempted, NIL rated, Non GST supplies, No supply turnover-Here the value of exempted, NIL rated, Non GST and no supplies has to be declared.
        • 7C.Zero rated supplies without payment of tax-Here zero rated supplies are declared.
        • 7D.Supplies on which tax has to be paid by the recipient on reverse charge basis- Here the value of inward supplies where tax is to be paid on reverse charge mechanism is declared.
        • 7E.Taxable turnover as per adjustment above: This is calculated as 7E= 7A-7B-7C-7D. This field is auto generated.
        • 7F. Taxable turnover as per liability declared in Annual Returns (GSTR9)- This is taxable turnover as declared in Table 4N of FORM GSTR 9.
        • 7G. Un-reconciled turnover (7F-7E): This field shows the difference between the value of 7F and 7E. The reason for such difference is to be stated in the next section.
      • 8.Reason for Un-reconciled taxable turnover- The reason for any difference in 7F and 7E has to be presented over here.

       

      Part 3 is basically the reconciliation of tax paid by the taxpayer.

      • 9.Reconciliation of rate wise liability and amount paid thereon- It is basically the amount of tax paid by the taxpayer for different rate of Goods and Service Tax. The taxable value of each such supply has to be specified in this field. Further the taxable value and tax paid for inward supplies under reverse charge mechanism is to be specified over here. The tax payer also declares the value of any interest, penalty, late fee or any other tax payment made by the assessee in the financial year. Finally in field 9Q the value of tax paid by the tax payer as declared in FORM GSTR 9 has to be provided. Any un-reconciled amount of tax paid is calculated and auto populated in 9R. Reason for such un- reconciled amount has to be presented in the next section which is section 10.
      • 11.Additional amount payable but not paid (due to reasons specified under Table 6,8 and 10 above) – Here any additional amount payable but not paid due tp reasons presented in section 6,8 and 10 shall be declared here.

      Part 4 is reconciliation of Input Tax Credit availed and utilized by the taxpayer under assessement

      • 12A.ITC availed as per audited Annual Financial Statement for State/ UT – For a multi-location unit the Audited Annual Financial Statement contains reference of the Input Tax Credit (ITC) availed in respect to all the units related to that PAN. However in cases where such references are not present ITC availed has to be internally derived for each GSTIN and declared over here. The Input Tax Credit declared in this field is the total credit availed after reversals.
      • 12B.ITC booked in the earlier financial year claimed in current financial year- This field should contain the Input Tax Credit declared in the earlier financial year but availed in this financial year.
      • 12C.ITC booked in current financial year to be claimed in subsequent financial years-There may be ITC that has been declared in this financial year but is availed in the next financial year. Such Input Tax Credit is declared over here.
      • 12D.ITC availed in audited financial statements or books of account- This is the auto populated field and is calculated as 12D=12A+12B-12C.
      • 12F.ITC claimed in Annual Returns (GSTR 9)- This is the net ITC available as declared in Table 7J of GSTR 9(Annual Returns).
      • 12G.Un-reconciled ITC – Any un-reconciled amount that is the difference between 12D and 12E figures out in this field.
      • 13.Reason for any reconciled difference – In case of any un-reconciled amount as indicated in 12F, reasons for such a difference has to be presented over here.
      • 14I.Reconciliation of ITC declared in Annual Returns (GSTR 9) with ITC availed on expenses as per Audited Annual Financial Statement or books of accounts – This filed is basically the breakup of the Input Tax Credit availed for each input/ input services. For example you have to declare ITC availed on purchase, transport, rent etc. After all the values are fed into the table at last the total ITC availed is auto calculated. Finally any difference in the value declared in Annual Returns (GSTR 9) is indicated. Reasons for any such difference have to be provided in Table 15. Finally the value on which tax is payable due to reasons specified in table 13 and 15 is declared in table 16

      Part 5:  Auditor’s recommendation on additional Liability due to non-reconciliation – Here the auditor’s recommendation on the tax payable due to un-reconciled turnover and un-reconciled Input Tax Credit is indicated. Any erroneous refund taken by the tax payer or any outstanding demand to be settled has to be declared over here. Finally the declaration has to be signed by the auditor who has verified and filled in the details.

      Part B: Certification

    3. The auditor who has verified the accounts certifies in this part regarding the documents maintained by the taxpayer is per the law. Further he declares the documents not maintained by the registered taxpayer. Further he should present his observations on the accounts and reconciliation presented above.

      Conclusion

      This is really a tiring piece to read and more tiring to perform. But I believe that the guidelines presented in the post would be a great help for tax person who are having a tough time figuring out what to do with GSTR 9C audit. Anyway you need to hire a CA or a CWA to take care of this form but an understanding of the form definitely helps to figure out the requirement. If you have any queries feel free to post.

       

 

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Input Service Distribution: Make input tax credit distribution simpler

Topics:

  1. What is Input Service Distributor(ISD)?
  2. Conditions to be followed by Input Service Distributor.
  3. Eligible documents issued by Input Service Distributor.
  4. Procedure for distributing input service credit.
  5. Adjustment of credit after distribution of credit
  6. Formula for distribution of ISD credit.
  7. Credit which cannot be transferred through ISD route.
  8. What to do if excess credit is distributed?
  9. Conclusion

 

1.What is an Input Service Distributor?

Input service Distributor is an entity who is engaged in accruing and distributing Goods and Service Tax credit to other branches of the same company. During the course of business it is a normal practice that the vendors raise all the bills to the head office of a company instead of the unit where the actual supply is taking place. The credit of tax paid on such bills cannot be taken directly by the manufacturing or service providing units. Instead the head office is required to take ISD (Input Service Distributor) registration and pass on the credit to the respective branches.

There may also be a situation where the head office is carrying on marketing and management activities for all the units. Here expenditure is incurred by the head office in housekeeping service, security service, software maintenance service and others. The input tax credit is available on such services. However such credit cannot be utilized by the head office directly as all the output supplies are from the units and no taxability arises here. In such a scenario the head office distributes the credit so accumulated among all the units from where the supply is taking place.

2.Conditions to be followed by Input Service Distributor

The following conditions needs to be followed by the Input Service Distributor

  • The PAN (Permanent Account Number) of the Input Service Distributor shall be same as that of the units where the input tax credit is distributed.
  • Input Service Distributor shall have separate registration from all other units.
  • All the units where credit is distributed must be taxable suppliers.
  • The ISD can distribute credit only from input services. Credit pertaining to inputs cannot be distributed by this route.
  • The Input Service Distributor cannot distribute credit on account of Goods and Service Tax payment on Reverse Charge Mechanism.

 

3.Eligible documents issued by Input Service Distributor.

There are three documents that can be issued by an Input Service Distributor to distribute credit. These are as follows:

  • Input Service Distributor invoice
  • Credit note issued by an Input Service Distributor
  • Any other documents issued by Input Service Distributor containing details as per Section 54 (1) of Central Goods and Service Tax Rules, 2017.

4.Procedure for distributing input service credit.

The following procedures shall be maintained while distributing any Input Service Credit

  • Input Tax Credit available with the Input Service Distributor in a particular month shall be distributed in the same month.
  • Here the Input Service Distributor furnishes the details of distributed input tax credit in FORM GSTR-6.
  • The eligible credit and ineligible credit shall be distributed separately.
  • The Input Service Distributor distributes the credit on account of Central Tax, State Tax, Union Territory Tax and Integrated Tax separately.
  • There is a particular formula prescribed for distributing of input tax credit among the units which you will read in the next section. The credit so deduced shall be distributed to the units after issuance of the eligible documents as already discussed.

5.Adjustment of credit after distribution of credit

There may be two situations

  • If additional amount of Input Tax Credit is available on account of issuance of debit note then the Input Service Distributor distributes the credit in the same month in which the debit note is issued. The same shall be included in FORM GSTR-6 for that period.
  • Sometimes credit notes are issued. In such a case the Input Tax Credit distributed is reduced. Now the Input Service Distributor is required to apportion the credit so reduced among all the units in the same manner in which the credit was previously distributed. Further the credit shall be reduced in GSTR -6 for the month. If the amount could not be adjusted in GSTR-6 then the amount of credit required to be reduced shall be added to the output tax liability.

6.Formula used for distribution of ISD credit.

There are two sets of rules for this section

  1. If the credit available for distribution to a particular unit (recipient) then the credit is transferred only to that unit.
  2. If the credit available for distribution to more than one units or all the units then the distribution shall be made on pro rata basis based on the turnover of that unit in that state or union territory.

Let C= amount of credit to be distributed,

T1= turnover of unit 1 in its state/ union territory in the relevant period

T = Aggregate turnover of all recipient in the relevant period.

Now if, C1= credit distributable to unit 1 then,

C1= C x (T1 / T)

 

In this formula there is an important word ‘relevant period’. Let us define it for clarity. So relevant period shall be

  • The preceding year to the year when the credit is distributable to the recipients if the recipients have any turnover in the previous year.
  • If there is no turnover of the recipient in the preceding year, then the last quarter for which the details of turnover is available with the recipient.

 

7.What credits are not eligible for transfer through Input service distribution?

  • The input tax credit pertaining to the inputs cannot be transferred through Input Service Distribution.
  • The credit pertaining to payment under reverse charge mechanism cannot be transferred through this mode.

8.What to do if excess credit is distributed?

If the Input Service Distributor distributes excess credit in contravention of the available provisions then the excess credit shall be reversed along with applicable interest.

7.Conclusion

The importance of Input Service Distribution is important as it help to greatly set off your tax expenses. There are many businesses that have input tax credit lying in input services but they are unaware of this avenue. By understanding this concept they can utilize the money already present with them in the form of credit and get the maximum out of it.

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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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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