Jul 242017
 

GST and TDS calculation under Income Tax Act

Circular no 23/2017 of CBDT:

The Central Board of Direct Taxes (the Board) had earlier issued Circular No. 112014 dated 13.01.2014 clarifying that wherever in terms of the agreement or contract between the payer and the payee, the Service Tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Income tax Act, 1961 (the Act) on the amount paid or payable without including such Service Tax component.

Now, the Government has brought in force a new Goods and Services Tax regime with effect from 01.07.2017 replacing, amongst others, the Service Tax which was being charged prior to this date as per the provisions of Finance Act, 1994. Therefore, there is a need to harmonize; the Circular No. 01/20 14 of the Board with the new system for taxation of services under the GST regime.

Hence therefore, wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XV II-B of the Act on the amount paid or payable without including such ‘GST on services’ component.

Conclusion:

The amount of TDS shall be computed without grossing up for the goods and service tax (GST) component, which is also part of the bill.

What is included in GST for the purpose of deduction of TDS at source?

GST for these purposes shall include:

  1. Integrated Goods and Services Tax (IGST),
  2. Central Goods and Services Tax (CGST),
  3. State Goods and Services Tax (SGST)and
  4. Union Territory Goods and Services Tax (UTGST).

For the purpose of above circular, GST does not included cess chargeable under GST (Compensation to the States) Act which is also a part of GST chargeable under the above acts. Matter needs to be further clarified as to whether TDS shall also be deducted on the cess component or not. Practically cess shall also be excluded for the purposes of deduction of TDS.

What is the impact of above circular on the existing contract as on 01.07.2017?

Any reference to ‘service tax’ in an existing agreement or contract which was entered prior to 01.07 .2017 shall be treated as ‘GST on services’ with respect to the period from 01.07.20 17 onward till the expiry of such agreement or contract.

Example: There are several payments, such as works contracts which attract GST (at 18%) and which also attract TDS (at 10% on fees for technical services, 2%/1% on work contract) under the Income Tax (I-T) Act.

Whether TDS under GST and TDS under income tax shall be deducted separately?

As the purpose of deduction of TDS under GST and TDS under income tax act is different and hence in cases where as per terms of contract TDS under income tax and TDS under GST is deductible at the same time than both are deducted separately and accounted for in the different accounts and further deposited under separate account.

Mar 202017
 

Why there is a need to differentiate between goods and services?

  1. Different rate of tax and classification rule for goods and services: The goods are to be classified as per HSN codes and services are to be classified as per SAC terminology. These codes are to be mentioned over invoices also. Moreover the rate of taxing goods and/ or services are different and hence, difference in amount of liability to pay tax. Hence, there is a requirement to classify a supply between goods or services as per rules mentioned in sch. II of the revised model GST law.
  2. Different place of supply provisions as to goods / services: GST being destination based tax on consumption and hence tax revenue shall go to the state where goods / services are consumed and hence difference provisions are made under law for place of supply as to goods on one hand and place of supply on the other.
  3. All transaction including composite transactions has been considered either as goods or as services under schedule II of the Revised Model GST Law.

Meaning of terms Goods and Services:

Meaning of Goods Meaning of Services
Art. 366(12) of the constitution:

Good includes all materials, commodities and articles.

Sec 2(49) of Revised Model GST Law:

Goods means every kind of movable property and

  • Includes

o    Actionable claim
o    Growing crops
o    Grass

o    Things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply

Sec 2(92) of the revised Model GST law

Services means anything other than goods and

 

  • Does not include

o    Securities
o    Money

  • Does not include

o    Money
o    Securities

Case Study:

Trading in securities: Trading in securities is specifically excluded from the definitions of goods (Sec 2(49) and services (Sec 2(92) and hence securities are neither goods not services and hence GST is not payable on trading in securities.

Actionable claims: Actionable claims under revised law are considered to be goods. As per section 2(1) of the Revised Model GST Law – actionable claims shall have the meaning assigned to it under section 3 of the Transfer of property act 1882 (TPA). As per section 3 of TPA, actionable claims comprises two types of claims –

  1. A claim to unsecured debts and
  2. A claim to beneficial interest in movable property which is not in possession, actual or constructive – whether present or future, conditional or contingent

Immovable properties: Goods and service tax can not be levy on sale or purchase of immovable goods. However, transfer of immovable property by way of lease or right of usages therefore would be within the preview of GST law as supply of services.

Intangible goods: As per Article 366(12) of the constitution goods includes all materials, commodities and articles. This definition does not make any distinction between tangible goods and intangible goods. The term good, as observed in TCS v State of AP (2004), used in constitution is very wide. The term all materials, articles and commodities includes both tangibles and intangibles which is capable of abstraction consumption and use and which can be transmitted transferred delivered stored possessed. Thus, intangible goods shall be treated as good and supply of intangible goods shall be supply of goods.

Canned software: To minimize the litigation schedule II is inserted in Revised Model GST law to define the matters to be treated as supply of good or service As per entry no 5(d) of the same development, design programming customization adaption up-gradation enhancement implementation of software shall be treated as supply of services. However, canned software are pre fabricated software and are generally sold through a medium. Hence, such canned services shall be considered as goods and supply of the same may be treated as supply of goods.

Mar 132017
 

High Seas Sale of goods under GST

Meaning of term High Seas Sale

High Sea Sales (HSS) is a sale carried out by the carrier document consignee to another buyer while the goods are yet on high seas. Goods on high seas means:

  • After their dispatch from the port / airport of origin, AND
  • Before their arrival at the port / airport of destination.

Consequences of HSS:

As mentioned above HSS contract / agreement should be signed after dispatch of goods from origin & prior to their arrival at destination. On concluding the HSS agreement, the bill of lading (B/L) should be endorsed in favour of the HSS buyer.

There is no bar on same goods being sold more than once on high seas. In such cases, the last HSS value is taken by customs for the purpose of levying of duty.

The tile of goods transfers to the HSS buyer prior to entry of goods in territorial jurisdiction of India.

The delivery from customs is, therefore, on account of last HSS buyer. Bill of entry (B/E) is also filed in the name of last HSS buyer.

Imposition of GST on HSS

As per section 3(3) of the IGST Act, supply of goods in the course of import into the territory of India till they cross the customs frontiers of India shall be deemed to be a supply of goods in the course of inter state trade or commerce.

Further, as per proviso to section 4(1) of IGST Act, intra state supply of goods shall not include supply of goods brought into India in the course of import till they cross the customs frontiers of India.

Thus, to conclude, sale in the course of import before customs frontier (i.e. HSS) would be subject to IGST.

Collection of GST on HSS

As per proviso to section 5(1) of IGST, the IGST on the goods imported into India shall be levied and collected in accordance with:

  • The provisions of section 3 of the customs tariff act 1975
  • At the point when duties of customs are levied on the said goods under section 12 of the customs act 1962
  • On the value as determined under the Customs Tariff act.

Conclusion

Thus, the first importer will not charge IGST on sale made by him to the HSS buyer and the later / last HSS buyer (as the case may be) would pay IGST at the time clearing of goods from the customs as per customs act.

Last HSS buyer would be eligible to claim such IGST paid to the customs authorities subject to other provisions of the act. GST paid is this case shall be in addition to Basic Custom Duty paid to custom authorities.

Mar 022017
 

GST Valuation (Determination of value of supply of Goods and services) Rules 2016

Valuation norms under GST under normal circumstances:

The value taken for calculation of GST is the price actually paid by recipient of goods / service to the supplier. This shall be taken if and only if:

  1. The supplier and the recipient of the supply are not related
  2. The price is the sole consideration for the supply

The value thus identified with above formula is popularly known as transaction value under section 15(1) of the model GST law. There are specific inclusions to be made in calculating transaction value as provided under section 15(2) and some exclusions provided under section 15(3) of the act. Section 15(4) provides that where the value of the supply of goods or services cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.

Hence, GST valuation rules 2016 are come on the way to provide when valuation under 15(1) shall be disregarded and how value shall be calculated under such circumstances.

When value under section 15(1) shall be disregarded

When the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any goods and/or services, he may ask the supplier to furnish further information, including documents or other evidence and if, after receiving such further information, or in the absence of any response from such supplier, the proper officer still has reasonable doubt about the truth or accuracy of the value so declared, it shall be deemed that the transaction value of such goods and/or services cannot be determined under the provisions of sub-rule (1) of rule 3. [Rule 7(1)]

Thus, only reasons to doubt on truth or accuracy of the value are sufficient to reject the transaction value. The existence of following ingredients is sufficient to arouse existence of reasons of doubt on proper officer to reject transaction value and consider the valuation rules:

  1. The significantly higher value at which goods and/or service of the like kind or quantity are supplied
  2. The significantly lower or higher value of the supply of goods and/or services compared to the marker value
  3. Mis-declaration of parameters such as description, quantity, quality, year of manufacture or production

Goods or services of like kind and quantity

Goods of like kind and quantity means :- Services of like kind and quantity means
Goods which are identical or similar in1.     Physical characteristics,2.     Quality and3.     Reputation as the goods being valued, and4.     perform the same functions or5.     Are commercially interchangeable with the goods being valued6.     And supplied by the same person or by a different person services which are:1.     Identical or similar in nature,2.     Quality and3.     Reputation as the services being valued and4.     supplied by the same person or by a different person

If value can not be determine and/or in case value is determine but proper officer rejected the value, then, value shall be determine by proceeding sequentially through rules 4 to 6.

Step 1: Determination of value by comparison:

Rule 4 : Where transaction value of supply of goods or services can not be determine, value shall be determine in following manner:

  1. Transaction value of goods and/or services of like kind and quality
  2. Supplied at or about the same time to other customers,
  3. Adjusted in accordance with the provisions of sub-rule (2) which are given below:
    1. Difference in dates of supply
    2. Difference in commercial level
    3. Difference in quantity levels
    4. Difference in composition
    5. Difference in quality and design
    6. Difference in freight and insurance charges depending on the place of supply

When value can not be determine under rule 4:

  1. Goods and/or services of like kind and value are not available
  2. If they are available, but adjustments as required in point no 3 above can not be made

Step 2: Computed value method

If value can not be determined under rule 4 value shall be calculated under computed value method which shall be determined as below:

  1. The cost of production, manufacture or processing of the goods or, the cost of provision of the services;
  2. Charges, if any, for the design or brand;
  3. An amount towards profit and general expenses equal to that usually reflected in supply of goods and/or services of the same class or kind as the goods and/or services being valued which are made by other suppliers.
Feb 252017
 

What is composition?

Composition means to receive less than for what a person or authority entitled for. Composition provisions under taxing laws are made to give relief to the small traders from the tactical booking keeping and return formalities of the law so that to ensure that no person is given undue hardship.

Who are small traders for composition scheme?

As per section 8(3) only those registered taxable persons are eligible for the scheme whose aggregate turnover in the preceding financial year did not exceed Rs 50,00,000/-.  Thus, only those traders can take benefits of this scheme whose aggregate turnover is either less than or equal to Rs 50,00,000/-. Under this scheme trader shall pay an amount at the maximum rate of 1% (2.5% in case of manufacturer) and relived of maximum of his compliance burden under the act.

Silent features of the scheme:

  1. Composition of one out of three business of a person is not possible. The objective of this scheme is to provide relief from compliance over burden. Hence, composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN.
  2. The taxable person engaged in interstate supply of goods / services can not opt for composition scheme.
  3. Taxable person opting for this scheme is not eligible for inter tax credit (ITC).
  4. Composition scheme supplier cannot issue a tax invoice and hence cannot pass forward the ITC.
  5. The composition supplier has to pay tax on all his purchases as a normal taxable person on all of his purchases made by him.
  6. The customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit because as mentioned above composition scheme supplier cannot issue a tax invoice.
  7. The taxable person under composition scheme is restricted from collecting tax.
  8. The term aggregate turnover is defined under sec 2(6) of model law. Accordingly aggregate turnover means – “the aggregate value of all taxable supplies, exempt supplies, exports of goods and/or services and inter-State supplies of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be. Further, aggregate turnover does not include the value of inward supplies on which tax is payable by a person on reverse charge basis or value of inward supplies.
  9. Penal consequences: Taxable person who was not eligible for the composition scheme would be liable to pay tax, interest and in addition he shall also be liable to a penalty equivalent to the amount of tax payable.

Who could actually take benefit of composition scheme?

Now the important question arises is that who could actually take benefit of this scheme? Certainly any taxable person whose turnover is more than Rs 50,00,000/- cannot avail this scheme. Now other taxable person should carefully analyze the impact of this scheme on the sale price their product. In case difference between tax rate of purchase and tax on sale is more than 1%, than under normal provisions his products are costlier under normal provisions and composition scheme is batter in this case if he is dealing with ultimate customer.

While making selection for the scheme the customer with which he is dealing with should also be kept in mind if the person to whom sale is being made is not an ultimate customer.

Further, analysis shall be made with respect to all business held under the same PAN number and all his business verticals. As the scheme will either apply to all or to none. Hence, a very careful study needs to be made before selection of the scheme.

Feb 162017
 

Significance of place of supply in IGST taxation

IGST stands for Integrated Goods and Service Tax. Supplies where location of supplier and place of supply are in different taxing state will come under the levy of IGST. Thus, determination of correct place of supply plays vital role to ensure that IGST is correctly levied and thereby correctly apportioned to consumer state.

The basic principle of GST is that it should effectively tax the consumption of above supplies at the destination thereof or as the case may at the point of consumption. In simple words tax should reach in the state where goods and / or services are actually consumed. So place of supply provision determine the place i.e. taxable jurisdiction where the tax should reach.

For instance, in the case of organization of IPL events, place of consumption is each of those states where IPL matches are actually organized. Hence, under the doctrine of taxing at the point of consumption the tax shall be received by all those states where IPL matches are organized.

Goods being tangible do not pose any significant problems for determination of their place of consumption as there is clearly identified movement of goods from origin state to destination states evident by transport documents which can be hardly manipulated subsequently. Hence, following simple rules are made with respect to determination of place of supply in case of movement of goods:

Place of supply of goods

  1. Where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.
  2. Where the goods are delivered by the supplier to a recipient or any other person, on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person.
  3. Where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient.
  4. Where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly.
  5. Where the goods are supplied on board a conveyance, such as a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board.
  6. Where the place of supply of goods cannot be determined in terms of sub-section (2), (3), (4) and (5), the same shall be determined by law made by the Parliament in accordance with the recommendation of the Council.

From the above it is evident that in case of supply of goods by physical movement place of supply could be one of the following:

  1. Location of goods at the time at which movement of goods terminates for delivery to the recipient
  2. Principle place of the third person on whose direction goods are delivered

In cases where there is no physical movement of goods the place of supply shall be the location of goods at the time of delivery of goods to the recipient.

In the case of goods assembled or installed at site, the place of supply shall be the place of such installation or assembly.

Finally, where the goods are supplied on board a conveyance, the place of supply shall be the location at which such goods are taken on board.

Apportionment of tax collected as IGST between central government and state government

IGST as we know is levied on every interstate supply of goods which is equal to CGST and SGST paid under normal transaction of intra state supplies. In case recipient is also a taxable person and eligible for input tax credit he will utilized IGST paid on input supply for paying his tax liability on outward supply.

However, in case any balance exist in IGST account even after utilization or recipient is unregistered dealer or not eligible for input tax credit, the balance outstanding in IGST account shall stand apportioned between central government and state government as provided under section 10. Thus, ultimately the consumer state will be the state that will enjoy the tax component in intra state supply.

The relevant portion of section is reproduced below to understand to principles of apportionment of IGST:

Section10. Apportionment of tax collected under the Act and settlement of funds

 (1) Out of the IGST paid to the Central Government in respect of inter-State supply of goods and/or services to an unregistered person or to a taxable person paying tax under section 8 of the CGST Act, the amount of tax calculated at the rate equivalent to the CGST on similar intra-state supply shall be apportioned to the Central Government.

(5) The balance amount of tax remaining in the IGST account in respect of the supply for which an apportionment to the Central Government has been done under sub-section (1), (2) or (3) shall be apportioned, in the manner and time as may be prescribed, to the State where such supply takes place as per section9 5 or 6.

Feb 142017
 

Transitional Provisions

As we all know that process of migration of existing taxpayers under different indirect taxation laws to GST system in at pace and this migration results in too many legal issues to be resolved. Under the existing provision lots of stock lying at departmental side and as well as on assessee side. The gist of such stock is as below:

  1. How CENVAT and / or VAT credit of earlier laws will carry forward under the new GST system?
  2. What happen to CENVAT on capital goods under earlier laws?
  3. Whether CENVAT Of on item not allowable under earlier laws can be claimed under the new law?
  4. What happens to wrong credit made by assessee under earlier law?
  5. Will ITC of VAT paid on inputs under earlier law is allowable to a service provider?
  6. Time limit for issue of debit notes or credit notes to be issued under earlier law?
  7. Pending refund proceedings, appeal or revision proceedings and interest recovery by departments under earlier law? Etc.

To resolved all the above issues CHAPTER XXVII (section 165 to section 197) is introduced under the model GST law with named as “TRANSITIONAL PROVISIONS”. Here we will discuss only transition provisions related to CENVAT credit and VAT credit carry forward in a return filled under earlier laws.

Section 167 – Amount of CENVAT credit carried forward in a return to be allowed as input tax credit

With the introduction of migration to GST regime endeavor of the central government, the first worries to the taxpayer is his CENVAT credit and VAT credits carry forward in his earlier laws. Under section 167 such taxpayer is eligible to carry forward such credits under GST regime also if he is allowed to do so under normal provisions of GST and he had not opted for composition scheme and such amount is also eligible under the GST regime for INPUT credit.

The provision of sec 167 as to carry forward of CENVAT is reproduced below:

A registered taxable person, other than a person opting to pay tax under section 9 , shall be entitled to take, in his electronic credit ledger, the amount of cenvat credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished, by him under the earlier law in such manner as may be prescribed:

PROVIDED that the registered taxable person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act.

The provisions of sec 167 as to carry forward of VAT is produced below:

(1) A registered taxable person, other than a person opting to pay tax under section 9, shall be entitled to take, in his electronic credit ledger, credit of the amount of Value Added Tax [and Entry Tax] carried forward in the a return relating to the period ending with the day immediately preceding the appointed day, furnished, by him under the earlier law, not later than ninety days after the said day, in such manner as may be prescribed:

PROVIDED that the registered taxable person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act:

PROVIDED FURTHER that so much of the said credit as is attributable to any claim related to section 3, sub-section (3) of section 5, section 6 or section 6A of the Central Sales Tax Act, 1956 (74 of 1956) that is not substantiated in the manner, and within the period, prescribed in rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 shall not be eligible to be credited to the electronic credit ledger:

PROVIDED ALSO that an amount equivalent to the credit specified in the second proviso shall be refunded under the earlier law when the said claims are substantiated in the manner prescribed in rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957.

(2) The amount of credit under the second proviso to sub-section (1) shall be calculated in such manner as may be prescribed.

Hence, the above provisions may be summarized as under:

Particulars CENVAT c/f under earlier laws VAT c/f under earlier laws
Will credit is eligible to taxable person opting for composition scheme under GST? No No
Manner of carry forward of CENVAT and / or VAT under earlier returns in GST? Take the amount shown in earlier return in his electronic credit ledger Take the amount shown in earlier return in his electronic credit ledger after deducting the input which require special declarations from the dealer.
How the amount to be carry forward will be calculated? Amount shown in last of the earlier returns relating of excise acts and / or service tax acts may get carry forward as such. Carry forward of VAT or entry tax as the case may be claimed with in a period of ninety days.Any claim on this account is not maintainable after 90 days.
Additional condition The carry forward shown in earlier return shall also be eligible under the GST regime also. The carry forward shown in earlier return shall also be eligible under the GST regime also.
What happens when special declaration is required (e.g. Form C etc.) is required under sales tax laws? ——- Input related to such turnover is not eligible to carry forward but such amount may be refunded when such claims are sustainable after proper deposit of form C etc to sales tax authority.

Feb 132017
 

Payment of taxes under GST

Payments that are to be made under GST (Sec 44):

  1. For any intra-state supply, taxes to be paid are the Central GST (CGST, going into the account of the Central Government) and
  2. The State GST (SGST, going into the account of the concerned State Government).
  3. For any inter-state supply, tax to be paid is Integrated GST (IGST) which will have components of both CGST and SGST.

In addition, certain categories of registered persons will be required to pay to the government account:

  1. Tax Deducted at Source (TDS) and
  2. Tax Collected at Source (TCS).

Further, In addition, wherever applicable, Interest, Penalty, Fees and any other payment will also be required to be made.

The input tax credit as self-assessed in the return of a taxable person shall be credited to his electronic credit ledger, in accordance with section 36, to be maintained in the manner as may be prescribed.

Who is liable to pay the tax:

  1. Supplier: In general the supplier of goods or service is liable to pay GST.
  2. Recipient: In specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism.
  3. Third person: In some cases, the liability to pay is on the third person, for example, in the case of e-commerce operator responsible for TCS or Government Department responsible for TDS).

When to make payment:

  1. For supply of goods: Liability to pay tax arises at the time of supply of Goods as explained in Section 12 and
  2. For supply of service: Liability to pay tax arises at the time of supply of services as explained in Section 13.

The time of supply is generally the earliest of one of the three events, namely:-

  1. Receiving payment,
  2. Issuance of invoice or
  3. Completion of supply.

Different situations envisaged and different tax points have been explained in the aforesaid sections.

Payment of taxes by the normal taxpayer is to be done on monthly basis by the 20th of the succeeding month. Cash payments will be first deposited in the Cash Ledger and the taxpayer shall debit the ledger while making payment in the monthly returns and shall reflect the relevant debit entry number in his return.

Order of making payment from electronic cash ledger:

As per section 44(8) of the model GST law – the payment from electronic cash ledger shall have to make in the following order:

  1. Self-assessed tax, and other dues related to returns of previous tax periods;
  2. Self-assessed tax, and other dues related to return of current tax period;
  3. Any other amount payable under the Act or the rules made there under including the demand determined under section 66 or 67.

Features of Payment procedure:

The payment process proposed under GST regime will have the following features:

  • Electronically generated challan from GSTN Common Portal in all modes of payment and no use of manually prepared challan;
  • Facilitation for the taxpayer by providing hassle free, anytime, anywhere mode of payment of tax;
  • Convenience of making payment online;
  • Logical tax collection data in electronic format;
  • Faster remittance of tax revenue to the Government Account;
  • Paperless transactions;
  • Speedy Accounting and reporting;
  • Electronic reconciliation of all receipts;
  • Simplified procedure for banks;
  • Warehousing of Digital Challan.

When the payment is deemed to be made:

The date of credit to the account of the appropriate Government in the authorized bank shall be deemed to be the date of deposit in the electronic cash ledger. Appropriate government as defined under section 2(11) of model GST law means central government in case of the IGST and the CGST and the state government in case of the SGST.

Manner of making payment:

  1. Through debit of Credit Ledger of the taxpayer maintained on the Common Portal- ONLY Tax can be paid.
  2. Tax payers shall be allowed to take credit of taxes paid on inputs (input tax credit) and utilize the same for payment of output tax.
  3. No input tax credit on account of CGST shall be utilized towards payment of SGST and vice versa.
  4. The credit of IGST would be permitted to be utilized for payment of IGST, CGST and SGST in that order.
  5. In cash by debit in the Cash Ledger of the taxpayer maintained on the Common Portal. Money can be deposited in the Cash Ledger by different modes, namely:
    1. E-Payment (Internet Banking, Credit Card, Debit Card);
    2. Real Time Gross Settlement (RTGS)
    3. National Electronic Fund Transfer (NEFT);
    4. Over the Counter Payment in branches of Banks Authorized to accept deposit of GST.
Feb 082017
 

Input service distributor under GST

Who is input service distributor?

As per section 2(54) of the model GST law – “Input Service Distributor” means an office of the supplier of goods and / or services which receives tax invoices issued under section 28 towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above;

Why there is need for separate provisions for Input Service Distributor?

Practically who happens in case service providers, services are received by such service providers at the head office and they offer their services through large number of branches located at different location of the same state or of different states.

In such scenario, head office have huge sum of input tax accumulated but no tax liability to adjust such input tax as no supply is made from the head office. On the other hand, branches have large sum of tax liability to pay GST with no or minimal amount of input tax to adjust. So, proper mechanism with proper check and balance is required so that branches providing services may adjust input tax of services received at head office.

Manner provided under law to adjust such input:

(1) The Input Service Distributor shall distribute, in such manner as may be prescribed, the credit of CGST as CGST or IGST and IGST as IGST or CGST, by way of issue of a prescribed document containing, inter alia, the amount of input tax credit being distributed or being reduced thereafter, where the Distributor and the recipient of credit are located in different States.

Hence, there is no need to issue a tax invoice to distribute such credit. As per explanation to sec 28(8) – The expression “tax invoice” shall be deemed to include a document issued by an Input Service Distributor under section 21

The Input Service Distributor shall distribute, in such manner as may be prescribed, the credit of CGST and IGST as CGST, by way of issue of a prescribed document containing, inter alia, the amount of input tax credit being distributed or being reduced thereafter, where the Distributor and the recipient of credit, being a business vertical, are located in the same State.

Conditions as to distribution of credit (Sec 21):

  1. The credit can be distributed against a prescribed document issued to each of the recipients of the credit so distributed, and such document shall contain details as may be prescribed;
  2. The amount of the credit distributed shall not exceed the amount of credit available for distribution;
  3. The credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
  4. The credit of tax paid on input services attributable to more than one recipient of credit shall be distributed only amongst such recipient(s) to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;
  5. The credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.

Manner of recovery of credit distributed in excess:

Where the Input Service Distributor distributes the credit in contravention of the provisions contained in section 21 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipient(s) along with interest, and the provisions of section 66 or 67, as the case may be, shall apply mutatis mutandis for effecting such recovery.

Manner of filing return:

Every taxable person registered as an Input Service Distributor shall, for every calendar month or part thereof, furnish, in such form and in such manner as may be prescribed, a return, electronically, within thirteen days after the end of such month.

Feb 072017
 

Meaning and significance of supply under GST

Supply – Taxable event:

As per section 8(1) of the revised GST act, the supply of goods or services is a taxable event. It states that – There shall be levied a tax called the Central/State Goods and Services Tax (CGST/SGST) on all Intra-State supplies of goods and/or services on the value determined under section 15 and at such rates as may be notified by the Central/State Government in this behalf, but not exceeding fourteen percent, on the recommendation of the Council and collected in such manner as may be prescribed.

Hence, liability to pay have been shifted from sale (as in case of existing sales tax / VAT act) or provision of services (as in the case of service tax) or manufacture (as in the case of excise duty etc.) to supply of goods or services. Hence, here an attempt is made to understand the meaning of term supplies.

What is supply under GST?

Section 3(1) of the act provides an inclusive definition of the term supply. As per definition given in section 3, all supplies may be categories under three heads:

Supplies – where consideration is necessary Supplies – where consideration is not necessary
In the course or furtherance of business Not in the course or furtherance of business
1.     Sale,

2.     Transfer,

3.     Barter,

4.     Exchange,

5.     License,

6.     Rental,

7.     Lease or

8.     Disposal

9.     Importation of services

1.     Importation of services 1.     Permanent transfer/disposal of business assets where ITC has been availed on such assets2.     Supply between related person or distinct person made in the course or furtherance of business.3.     Supply of goods by principle to his agent or vice versa, where agent undertakes to supply / received such goods on behalf of the principle.

4.     Importation of services by a taxable person from –

a.     A related person

b.     Any of his other establishment outside India

All above activities shall be treated as supply and GST will be attracted as the provisions of the GST act.

What is not supply under GST?

Schedule III and Schedules IV specifies activities and transactions which are not to be treated as supply and hence to not liable for GST. Few such items are given below:

Activities undertaken by any person Following activities are undertaken by central government or state government or any local authority to:
1.     Services by an employee to the employer2.     Services by any Court or Tribunal3.     Function / duties performed by:

a.     MP / MLA

b.     Members of Panchayats

c.     Members of Municipalities

d.     Members of other local authorities

e.     Post as provided under constitution

4.     Services by a foreign diplomatic mission

5.     Services of funeral, burial, crematorium or mortuary

1.     Another government or local authority excluding services of post, transport 1.     To individual in discharge of statutory function. 1.     Health care2.     Education etc.

What is composite supply?

As per sec 2(27) “composite supply” means a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in combination with each other in the ordinary course of business, one of which is a principal supply;

Case 1: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply.

A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply.

What is mix supply?

As per sec 2(66) “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in combination with each other by a taxable person for a single price where such supply does not constitute a composite supply;

Case 2: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.

A mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.