To iron out the practical hindrances and issues being faced by the Industry Inc since the implementation of GST, the GST Council on July ...
To iron out the practical
hindrances and issues being faced by the Industry Inc since the implementation
of GST, the GST Council on July 9, 2018 had unveiled the draft of 46 proposed changes in GST law as a major step towards facilitating trade and ease of doing
business.
After detailed analysis of
various amendments, following suggestions were compiled by Mr. Bimal Jain,
Chairman, Indirect Tax Committee, PHD Chamber of Commerce which have been
submitted to the Government for their kind consideration:
I Definition of ‘supply’
The term ‘supply’ is proposed to be
amended to exclude activities/ transactions listed in Schedule II to ensure
that the activities/ transactions as per Schedule II is to decide only whether
the same is supply of goods or services. Hence, activities/ transactions listed
in Schedule II (as supply of service or supply of goods) shall be taxed only
when they constitute ‘supply’ in accordance with provisions of Section 7(1)(a),
(b) and (c) of the CGST Act, 2017 (“the CGST Act”)
Suggestion(s):
·
The definition of term
“Supply” starts with “Supply includes” is too wider a definition and with subjectivity, followed by inclusive
definition. As this is taxable event in GST, it must be defined concretely so
as to avoid any disputes & litigation, as we have past history for the term
“Manufacture’ for the chargeability of Central Excise Duty.
·
Composite vs. Mixed Supply: Including activities relating to repairs,
maintenance, installation etc. as supply of services in Schedule II - Lot of divergent views and interpretations
are revolving around the contracts for repairs and maintenance of goods which
sometimes involve substantial supply of parts and consumables. Ideally such
supplies are composite supplies, but identifying principal supply therein is
becoming a vexed issue. Things are also made unsettled vide recent Circular
No. 47/21/2018 – GST dated 08.06.2018 wherein while discussing
servicing of car issue, it was clarified that where a supply involves supply of
both goods and services, values of which are shown separately, the goods and
services would be liable to tax at their respective rates. Hence, it is suggested
that the concept of composite and mixed supply should be dealt and clarified as
legislator intended while framing the section 8 of the CGST Act and should be
more emphasized and explained by way of an example in the respective section of
the CGST Act and dominant/ principal supply concept would be determining factor
for arriving at the composite supply irrespective of the fact of portion of
material & services involved in the contract.
·
Clarifying the meaning
of term ‘immovable property’ under Para 6(a) of Schedule II - Meaning of term ‘immovable property’ must
be clarified to avoid disputes whether particular activity is ‘works contract’
or not.
II Schedule III
The scope of Schedule III is
proposed to be expanded to include merchant trading, supply of goods in the
course of High Seas Sale and Sale of imported warehoused goods.
Suggestion(s):
·
Retrospective
effect - Amendments
in Schedule III should be made effective retrospectively from 01.07.2017 to provide
clarity and avoid any legal dispute/ hardship on the tax payers for the
intervening period.
·
Refund for
tax already paid on such
transactions - Relief in the form of possible refunds should be granted for the
tax already paid earlier on sale of goods from custom bonded warehouse.
·
Inclusion
of Inter-Company supply of services - Inter-Company supply of services
provided by Head office to branch office/ representative office of the same
legal entity having a common PAN located in the taxable territory or vice versa
should be included in Schedule III so that the same does not qualify as supply
of services liable to GST. Examples of such services are centralized functions
of accounting, legal, HR, Management carried out from the Central Head Office
for all branches etc.
·
Inclusion
of export duty credit scrips in Schedule III - Duty credit scrips viz. MEIS/ SEIS,
issued on export of goods/ services are presently treated as exempted goods and
therefore are subject to reversal of credit provisions of Section 42/Section 43
of the CGST Act on inputs/input services/Capital goods. As an encouragement to
exporters, this Duty credit scrips should be included here as neither as supply
of goods nor services.
III Reverse Charge under Section 9(4) of the
CGST Act
GST Council has proposed to omit
existing Section 9(4) of the CGST Act and instead, granting an enabling power
for the Govt. to notify a class of registered persons who would be liable to
pay tax on reverse charge basis in case of receipt of taxable goods or services
from an unregistered supplier. The details of such specified persons are to be
notified in future.
Suggestion(s):
·
Similar
changes are also required in Section 5(4) of the IGST Act, 2017. (“the IGST
Act”).
·
Operation
of Section 9(4) in its present form, if notified for a particular class of
persons is not conducive as the registered recipient requires to raise self-invoice,
capturing individual HSN/ SAC codes for procurement of taxable goods or
services, which is operationally not easing business and should be done away completely.
IV Composition Suppliers
The council has proposed to give
effect to its earlier decision to increase threshold limit for the composite
suppliers from INR 1 crore to 1.5 crores and further to enable registered manufacturers
and traders to opt for composition scheme u/s 10(1) of the CGST Act even if
they supply services of value not exceeding 10% of the turnover in the
preceding FY in a State/Union territory or Rs. 5 lakhs, whichever is higher
[Presently, registered persons engaged in the supply of services (other than
restaurant services) are not eligible for the composition scheme].
Suggestion(s):
·
Uncertainty on
inclusion of clause (b) - Draft amendment
states “that a person who opts to pay tax under clause (a), clause (b) or clause (c) may
supply services of value not exceeding ten percent of turnover in the preceding
financial year in a State or Union territory or five lakh rupees, whichever is
higher”
Clause (b) mentions
about composite rate of tax on restaurant service providers. There seems no
essence to include this clause while allowing supply of services upto specified
amount to manufacturers and traders. Else, it may be clarified that that for
clause (b), this limit shall apply for services supplied other than restaurant
service providers.
·
Restricting value of
Rs. 5 Lakh to only taxable supply
- It should be clarified that this amount of Rs. 5 Lakhs should only be the
taxable value of services - Order no. 01/2017 dated 13.10.2017
already clarifies that person supplying exempt services along with goods or
restaurant services are not ineligible for composition levy.
·
Clarification is
required on nature of supply of services – Whether only Intra-state supply of services or Inter-state
supply of services are also allowed.
·
Clarification on rate
of tax on such services - Clarification is
required as to what could be the rate of tax on such supply of services upto
specified amount i.e. composition rate or actual rate of tax specified in
Notification No. 11/2017-CGST (Rate) dated 28.06.2017. If normal rate of tax is
applicable, then whether composition supplier would be entitled to claim ITC
for such services under composition scheme?
·
Providing some ceiling
for inter-state outward supplies of goods by a composition supplier – Presently, a person opting for composition
scheme is not allowed to make any inter-state outward supply of goods. This is
creating a bottle neck for small sector. It is suggested here also that certain
percentage of turnover may be allowed for inter-state supply of goods for the
benefit of SME/MSME sector in true sense.
V Input Tax Credit – No interest on reversal
of ITC for non-payment to supplier
It is proposed to delete interest
applicability when GST ITC is reversed for non-payment of invoice amount after
6 months from date of invoice
Suggestion(s):
·
Retrospective effect - This provision should be made applicable
retrospectively from 01.07.2017 and payment of interest already made in
intervening period should be refunded/ reinstated.
VI Input Tax Credit – Blocked credit
It is proposed to prune down blocked credit
list in Section 17(5) of the CGST Act. ITC shall be available in case of motor
vehicles having approved capacity of not more than 13 persons (including the
driver) only in case it is used for specified purposes.
It is also proposed that ITC in respect of
food and beverages, health services, renting or hiring of motor vehicles,
vessels and aircraft, travel benefits to employees etc., can be availed where
the provision of such goods or services is obligatory for an employer to
provide to its employees under any law for time being in force.
Suggestion(s):
·
ITC on construction
services - Section 17(5) of
the CGST Act must be pruned down further. ITC in respect of construction of
factory, offices must be allowed as the same are foundation of any business for
making outward supply of goods or services and always required in the course or
furtherance of business. Without ITC, setting up infrastructure for doing business
is turning out to be very expensive, which is contrary to the concept seam less
flow of credit and going contrary to the concept of “Make in India” scheme. Thus, clause (c) and
(d) may be omitted.
·
ITC on ‘free samples’
distributed as a part of sales promotion activity - Word ‘free samples’ must be deleted from clause (h) of
Section 17(5) as distributing free samples is an inevitable practice of the trade
to induce clients to judge quality and buy the product of the company. This
practice is most prevalent in all sectors, in particular pharmaceuticals/
medicinal industries where medicines cannot be sold without providing test
samples. Here, the intention of the registered person is to promote their
business i.e. it is a promotional or advertising activity. The company itself
understand the same and such advertising cost is generally taken into account
while finalizing pricing of other items manufactured. Hence, denial of credit
on goods supplied as free samples is not justified.
·
Clarification that
term ‘gift’ shall not include promotional items - It may be clarified that supply of promotional items along
with supply of goods as a combo supply (undertaken as a part of business
promotional activity), shall not be covered under the ambit of ‘gift’ for
reversal of ITC.
·
Allow ITC on ‘gifts’
when tax is paid on outward supply
- In terms of Para 2 of Schedule I, supply of goods and services between
related persons, shall be treated as supply even if made without consideration.
However, gifts not exceeding INR 50,000/- in value in a financial year by an
employer to an employee shall not be treated as supply of goods or services.
Thus, even though such gifts exceeding INR 50,000/- in value in a financial
year is taxable in the hands of employer, ITC of GST paid on procurement of
such gifts shall not be available to him under Section 17(5)(h) of the CGST
Act. This aspect of double taxation is required to be dealt with properly in
the law.
·
No denial of ITC on
goods confiscated or detained
- Clause (i) of Section 17(5) of CGST Act provides that input tax credit shall
not be available in respect of the any tax paid in terms of section 74, 129 or
130 dealing with confiscation and detainment of goods. But when the confiscated
goods are released and sold, it will be subject to tax. It is suggested that
there would be no denial of ITC on goods confiscated or detained. Interest
& penalty may be charged but denial of credit lead to cascading and
multipoint tax philosophy and going contrary to the concept of seamless flow of
credit.
·
Any other civil
structure not to be excluded from Plant and machinery - Explanation in Section 17 for the purposes
of Chapter V (Input Tax Credit) and Chapter VI (Registration) provides that the
‘Plant and Machinery’ means apparatus, equipment, and machinery fixed to earth
by foundation or structural support that are used for making outward supply of
goods or services or both and includes such foundation and structural supports
but excludes —
(i)
land, building or any other civil structures;
(ii)
telecommunication
towers; and
(iii)
pipelines laid outside
the factory premises
It is therefore suggested that the words
“other civil structures” be removed from the said Explanation. Inclusion of the
term “Other civil structures” may lead to numerous disputes on the eligibility
of credit on various plant and machineries as various plant and machineries
require civil works to support their operation.
·
Pipe line used outside
the factory should be covered under the definition of Plant and Machinery - Pipeline which are established outside
business premises which is serving the purpose of providing Water/Gas, etc.
used in manufacturing of the product taxable under GST should be covered under
the definition of Plant and Machinery so that input of the same will be
available to the assessee.
VII Input Tax Credit – Value of exempt supply
for reversal of ITC
It is proposed that no reversal of common ITC
shall be required on activities or transactions specified in Schedule III
(other than sale of land and, subject to clause (b) of paragraph 5 of Schedule
II, sale of building) by excluding it from the ambit of ‘exempt supply’ for the
purpose of reversal.
Suggestion(s):
·
Non-GST supply Vs.
Non-taxable supply - Form GSTR-3B has
used the term Non-GST supply which is nowhere defined in GST law. GST law only
discussed the term ‘non-taxable supply’ to mean a supply of goods or services
or both which is not leviable to tax under GST Act [Section 2(78) of the CGST
Act]. Like, supply of five specified petroleum products and alcoholic liquor
for human consumption may be termed as non-taxable supply. Then, what
constitutes non-GST supply? Whether Schedule III items are being taken as
non-GST supply? Clarity in this regard is required.
·
Clarification on
meaning of ‘non-taxable supply’
- A concrete list of activities constituting non-taxable supplies in GST be
provided to avoid any confusion as to its inclusion in aggregate turnover and
reversal of common credit.
VIII Registration
v It is proposed to insert the provisions of
separate registration for multiple units in an SEZ.
Suggestion:
Word ‘shall’ be
replaced with ‘may’ - It should not be
made mandatory for the existing SEZ units which is having a single registration
if located in the same SEZ. This will
create confusion and additional work for the existing units. This should be an optional facility only.
v Further, the proposed amendment in Section
25(2) of the CGST Act allows multiple places of business of the taxpayers to be
registered separately in addition to the different business verticals within
the state.
Suggestion:
Suitable mechanism be
provided for transfer of credit between different registrations held in common
e-credit ledger of a particular State – With facility to take separate registration for different
place of businesses, suitable guidelines also be provided for transferring
credits pertaining to different place of business in a State which as on the
date of taking separate registration will be lying in the common e-credit
ledger of that State.
IX Simplification of Returns
A new provision is being introduced by
inserting section 43A, to enable the new return filing procedure as proposed by
the GST Returns Committee and approved by the GST Council. However, the detailed mechanism of giving
effect to the above proposal is awaited.
Suggestion(s):
·
Payment of tax should
be made prime responsibility of the supplier - Clause (v) of proposed Section 43A makes supplier and the
recipient jointly and severally liable to pay tax or to reverse the input tax
credit availed against such tax, for which the details have been furnished by
the supplier but the return in respect thereof has not been furnished and tax
has not been paid.
It is advisable that the supplier shall be made
primarily responsible to pay taxes and the recipient shall not be made liable
to reverse ITC availed against such taxes already paid by the recipient to the
supplier. Only on failure of recovery of taxes from supplier under exceptional
circumstances, as affirmed by the GST Council in their 27th GST
Council meeting, the recipient could be approached for discharge of liability
or reversal of ITC, as the case may be. In this regard, strict safeguards must
be ensured so that GST authorities cannot deny ITC if the supplier has not paid
the taxes as a first recourse. Further, appropriate provisions must be
inserted/ amended in the GST ITC provisions also under Chapter V of the CGST
Act.
X Debit and Credit Notes
The amendment seeks to permit a registered
person to issue consolidated credit / debit notes as prescribed under Section
34 of the CGST Act in respect of multiple invoices issued in a Financial Year
without linking the same to individual invoices.
Suggestion(s):
·
Issuance of debit
note/credit note should be allowed for multiple purposes - Provisions for issue of debit note/credit
note are restrictive and meant for specified conditions in the GST Law whereas
the taxpayers should be allowed to issue debit/credit notes for multiple
purposes as long as they contain the prescribed particulars as required under
the GST rules and the same are disclosed in the Returns to be filed under
Section 39 and further, time period prescribed as date but not later than
September following the end of the financial year in which such supply was
made, or the date of furnishing of the relevant annual return, whichever is
earlier, and the tax liability shall be adjusted in such manner as may be
prescribed, should be done away as there are lot many situation viz. quantity
discounts/ trade discounts, etc., when DN/CN to be issued nearly at the end of
next FY, following the end of relevant financial year in which such supply was
made
·
Issuance of DN/CN
without GST may also be allowed as an option to deal with financial adjustments wherein no adjustment of the tax liability is
required in the hands of the supplier and corresponding reversal of ITC in the
hands of recipient.
XI GST Refund
Amendments
are proposed under Section 54(3) of the CGST Act to file refund claim for the
unutilized ITC on Inputs & Input Services by due date for furnishing of
returns under Section 39 for the period for which the claim for refund of ITC
arises, which is presently the end of the financial year.
Suggestion(s):
·
Facility on GSTN
portal should be enabled to allow monthly and/
or quarterly refund – As of now Form RFD – 01A allows only
monthly claim of refunds. Thus, proper GSTN functionality must be ensured for
proper execution of proposed change.
·
Removing anomaly of no refund on unutilized ITC on capital goods as against
Rebate Mechanism of export
made on payment of IGST – The CGST Rules do not allow refund of ITC on capital goods when
zero-rated supplies are made against LUT without payment of IGST, but in case
of supplies made on payment of IGST, refund of ITC on capital goods is allowed.
It is suggested that such anomaly must be removed for creating par situations
for both rebate and refund mechanisms.
XII Pre-deposits for filing an appeal to
Appellate Authority and Appellate Tribunal
It is proposed under Section 107(6) of the
CGST Act to put a ceiling on the limit of the amount to be deposited before
filing an appeal to the appellate authorities which is 10% of the disputed tax
amount subject to maximum limit of Rs.25 crores. Further, it is also proposed
under Section 112(8) of the CGST Act, the maximum amount to be deposited to
file appeal from the appellate authority to appellate tribunal is 20% of the
disputed tax amount along with the amount deposited u/s 107(6) subject to
maximum of Rs. 50 crores.
Suggestion(s):
·
Maximum ceiling should
be 10 crores - Under Excise and
Service tax, pre-deposit @ 7.5% of tax in dispute at first level and 2.5% at
second level was applicable subject to maximum of Rs. 10 Crores. Keeping such
high pre-deposit amount of 10%/20% with maximum ceiling as high as Rs. 25
crores/ 50 crores will cause undue hardship on innocent assesses having genuine
case and not easing business for SME/ MSME Sectors.
It is suggested that, pre-deposit amount under
GST also should be 7.5% at first level of appeal and 2.5% at second level,
totalling together 10% of disputed tax amount subject to maximum of Rs. 10
Crores.
XIII Recovery of Tax
It is proposed to provide that recovery may be
made from distinct persons present in different States / UTs in order to ensure
speedy recovery from other establishments of the registered person.
Suggestion(s):
·
Adverse impact on
Industry - The proposed
amendment is anti-industry and will be retrograde in nature. Operation of units in other states should not
be affected if there are disputes in one state and a consequent recovery. The
proposed amendment should therefore be dropped in the interest of industry.
XIV Transitional Provisions
It is proposed to clarify that eligible duties under
transitional credit do not include the additional duty of excise leviable under
section 3 of the Additional Duties of Excise (Textile and Textile Articles)
Act, 1978.
Suggestion(s):
·
Allowing time period
for reversal of credit on cesses availed - Since the law was not clear, many companies have gone ahead
and availed the credit on cesses, provision should be amended in such a way
that companies which have availed credit of the cesses should be allowed time
to reverse the credit within 30 days from the date of the enactment without
interest or penalty implication.
Other changes to be considered:
I Definition of ‘composite supply’
Section 2(30) of the CGST Act
defines Composite supply as a supply made by a taxable person to a recipient consisting
of two or more taxable supplies of goods or services or both, or any
combination thereof, which are naturally bundled and supplied in conjunction
with each other in the ordinary course of business, one of which is a principal
supply.
Suggestion(s):
·
Clarification as to
separate consideration - It is suggested
that suitable clarification be provided that if separate considerations are
charged for various goods and services supplied in conjunction with each other
in ordinary course of business, the same shall also amount to composite supply.
·
Suitable clarification
be issued to provide certainty for determining whether a bundle of supply is a
composite supply and also to determine principal supply therein.
II Time of supply
Section 14 of the CGST Act indicates
the provisions for determining the time of supply in case where there is a
change in the rate of tax in respect of supply of goods or services.
Suggestion(s):
·
Clarification in case
of change in rate of tax w.r.t continuous supply of services - In order to avoid possible litigation, it
must be suitably clarified regarding time of supply in case of change in rate
of tax w.r.t continuous supply of services/goods.
·
Time of
supply provisions in case of new goods or services become taxable for first
time – Like
Rule 5 of the Point of Taxation Rules in erstwhile Service tax era, proper
provisions be suitably provided to determine time of supply in case of new
goods or services becoming taxable for the first time.
III Supply of ITC availed Capital Goods
Section 18(6) of CGST Act provides
that in case of supply of capital goods or plant and machinery, on which ITC
has been taken, the registered person shall pay an amount equal to the ITC
taken on the said capital goods or plant and machinery reduced by such
percentage points as may be prescribed or the tax on the transaction value of
such capital goods or plant and machinery determined under section 15,
whichever is higher:
Provided that where refractory
bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable
person may pay tax on the transaction value of such goods determined under
section 15.
Suggestion(s):
·
Words ‘plant and
machinery’ be deleted - The use of word
plant and machinery is not required as they are already covered under the
meaning of capital goods.
·
Clarification on no
reversal of ITC in case of renting of capital goods – Section 18(6) uses the term ‘supply’ which includes even
renting of those capital goods or plant and machinery, on which ITC has been
taken i.e. to say in case such capital goods/ plant or machinery are rented
out, Section 18(6) triggers and there would be reversal of ITC which is not the
intention. Suitable proviso be inserted accordingly.
·
Transaction value concept be applicable for all capital goods
supplied as scrap – Like Rule 3(5A)(b) of the Cenvat Credit Rules, 2004, if the
capital goods are cleared as waste and scrap, payment of tax on the transaction
value be allowed. It is suggested to make the proviso general rather than
restricting to only specified items viz. refractory bricks, moulds and dies,
jigs and fixtures.
IV GST Audit
Section
35(5) of CGST Act provides that every registered person whose turnover
during a financial year exceeds the prescribed limit shall get his accounts
audited by a chartered accountant or a cost accountant. In this regard, Rule
80(3) of the CGST Rules states that every registered person whose aggregate
turnover during a financial year exceeds two crore rupees shall get his
accounts audited as specified under sub-section (5) of section 35 and he shall
furnish a copy of audited annual accounts and a reconciliation statement, duly
certified, in FORM GSTR-9C.
Suggestion(s):
·
Two crores limit must
be computed per registration wise
– Anomaly of word ‘turnover’ in Section 35(5) viz-a-viz word ‘aggregate
turnover’ in Rule 80(3) be removed. Further, clarity must be provided that two
crores limit for GST audit shall be determined per State wise turnover rather
than taking aggregate turnover on PAN India basis of an assessee. Considering
aggregate turnover of an assessee will create a situation where one unit of
such assessee having only Rs. 1,00,000 (assumed) turnover shall be required to
conduct GST Audit just because its other units are crossing two crore limit.
V Centralised Authority for Advance Ruling
Considering
the contrary
rulings coming from different States’ Advance
Ruling Authorities, necessary provision for establishing centralised Authority
for Advance Ruling or Appellate Authority for Advance Ruling be inserted. The issue has been identified as a concern
by the GST Council also and hence necessary amendments in this regard be
initiated accordingly.
DISCLAIMER:
The views expressed are strictly of the author and A2Z Taxcorp LLP. The
contents of this article are solely for informational purpose. It does not
constitute professional advice or recommendation of firm. Neither the author
nor firm and its affiliates accepts any liabilities for any loss or damage of
any kind arising out of any information in this article nor for any actions
taken in reliance thereon.
A2Z Taxcorp LLP I Tax and Law Practitioners
Info@a2ztaxcorp.com
www.a2ztaxcorp.com
A2Z Taxcorp LLP I Tax and Law Practitioners
Info@a2ztaxcorp.com
www.a2ztaxcorp.com
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