Handbook of GST in India: Concepts and Procedures – Second Edition

Handbook of GST in India CONCEPTS AND PROCEDURES Rakesh Garg, LLB, FCA Sandeep Garg, CMA, FCA Highlights • Highlights of the Revised Model GST/IGST Law released in November 2016 • Elaborate discussion on the Revised Model GST/IGST Laws, Draft Rules and Formats through reader friendly presentation in the form of practical illustrations, tables and graphs • Comprehensive compliance chart with limitation periods • Action points for smooth transition to GST • Contentious issues arising from the Revised Model GST/IGST Laws have been discussed in the respective chapters

Bloomsbury India Professional

Second Edition

Contents at a glance About the authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Revised Model GST Laws - Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Compliance chart with limitation periods under GST . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Getting ready for smooth transition to GST – Way forward. . . . . . . . . . . . . . . . . . . . . . 23 Chapter 1

Existing indirect tax structure in India. . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Chapter 2

GST – concept, features and advantages. . . . . . . . . . . . . . . . . . . . . . . . . 45

Chapter 3

Taxes or duties to be subsumed in the GST. . . . . . . . . . . . . . . . . . . . . . . 61

Chapter 4

GST Council and its functions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Chapter 5

Whether a person is liable to pay GST − steps . . . . . . . . . . . . . . . . . . . . 69

Chapter 6

Supply – meaning, time and valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Chapter 7

Concept of IGST - Inter-state supply, local supply, and imports. . . . . . . 91

Chapter 8

Exemptions under GST and zero rated supply. . . . . . . . . . . . . . . . . . . . 117

Chapter 9

Goods v. services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Chapter 10

Rates of GST and revenue neutral rate (RNR). . . . . . . . . . . . . . . . . . . . 131

Chapter 11

Input tax credit and input service distributor. . . . . . . . . . . . . . . . . . . . . 137

Chapter 12

Composition scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

Chapter 13

Job work – special provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

Chapter 14

E-commerce, TCS & supply of online data– special provisions. . . . . . 165

Chapter 15

Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

Chapter 16

Returns under the GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

Chapter 17

Payment of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

Chapter 18

Tax deduction at source. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Chapter 19

Refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

Chapter 20

Invoice, accounts and records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

Chapter 21

Assessment & audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279

Chapter 22

Penalties and prosecution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

Chapter 23

Appeal, advance ruling and information returns. . . . . . . . . . . . . . . . . . 293

Chapter 24

Transitional provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 xi

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Chapter 25

GST Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315

Chapter 26

Industry – impact, expectations and transition. . . . . . . . . . . . . . . . . . . . 321

Chapter 27

GST in other countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

Annexures Annexure I Annexure II Annexure III Annexure IV Annexure V

Annexure VI

Annexure VII

Annexure VIII

Annexure IX

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Amended/Inserted Articles by the Constitution (101st Amendment) Act, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347 Model GST Law (Revised). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357 Model IGST Law (Revised). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 Goods and Services Tax (Compensation to the States for Loss of Revenue) Bill, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 Draft Goods and Services Tax - Registration Rules, 20-- . . . . . . . . 547 Draft Goods and Services Tax Rules, 20-- Registration Formats . . 557 Draft Goods and Services Tax - Invoice Rules, 20-- . . . . . . . . . . . . 627 Draft Format under Goods and Services Tax Rules Invoice Rules, 20--. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632 Draft Goods and Services Tax - Payment Rules, 20-- . . . . . . . . . . . 635 Draft Goods and Services Tax Rules, 20-- Payment Formats . . . . . 639 Draft Goods and Services Tax - Refund Rules, 20--. . . . . . . . . . . . . 651 Refund Forms for Centre and State . . . . . . . . . . . . . . . . . . . . . . . . . 657 Draft Goods and Services Tax - Return Rules, 20--. . . . . . . . . . . . . 677 Draft Goods and Services Tax Rules, 20-- Return Formats. . . . . . . 689

Table of contents About the authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Revised Model GST Laws - Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Compliance chart with limitation periods under GST. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Getting ready for smooth transition to GST – Way forward. . . . . . . . . . . . . . . . . . . . . . 23 Chapter 1 Existing indirect tax structure in India . . . . . . . . . . . . . . . . . . . . . . . . 33 1.1 Framework of Constitution of India in respect of taxation. . . . . . . . . . . . . . . . . 33 1.2 Main indirect taxes or duties in India at present. . . . . . . . . . . . . . . . . . . . . . . . . 34 1.3 Customs duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 1.4 Excise duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 1.5 Service tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 1.6 State value added tax (VAT) or central sales tax (CST) . . . . . . . . . . . . . . . . . . . 38 1.6.1 Value added tax (VAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 1.6.2 Enactment of the Central Sales Tax Act, 1956 (CST Act). . . . . . . . . 40 1.7 Other important indirect taxes or duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 1.8 Shortcomings of the present structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Chapter 2 GST – concept, features and advantages. . . . . . . . . . . . . . . . . . . . . . . 45 2.1 What is GST and why GST?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.2 Features of Indian GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 2.3 Illustration of GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 2.4 Illustrations of GST [As given in the first discussion paper]. . . . . . . . . . . . . . . . 51 2.4.1 In relation to supply of goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 2.4.2 In relation to supply of services – Illustration . . . . . . . . . . . . . . . . . . 51 2.5 Present indirect tax structure versus GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 2.6 Advantages of GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 2.7 Documents released by the government on GST so far (as on 1st February 2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 2.8 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Chapter 3 Taxes or duties to be subsumed in the GST. . . . . . . . . . . . . . . . . . . . . 61 3.1 Taxes or duties to be subsumed in GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 3.2 Taxes or duties not to be subsumed in GST . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 3.3 Special status of tobacco and its products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 3.4 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

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Chapter 4 GST Council and its functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 4.1 What is GST Council. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 4.2 Manner of decision by the GST Council. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 4.3 Role and functions of the GST Council. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 4.4 Meetings of the GST Council and its conclusions. . . . . . . . . . . . . . . . . . . . . . . . 67 Chapter 5

Whether a person is liable to pay GST − steps . . . . . . . . . . . . . . . . . . . . 69

Chapter 6 Supply – meaning, time and valuation. . . . . . . . . . . . . . . . . . . . . . . . . 71 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 6.1 Meaning of supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 6.1.1 Meaning of the term “supply” [Section 3(1)]. . . . . . . . . . . . . . . . . . . 71 6.1.2 Whether a activity is “supply of goods” or supply of service” Matters listed in Schedule II [Section 3(2)]. . . . . . . . . . . . . . . . . . . . 73 6.1.3 Activities or transactions which shall be treated neither as supply of goods nor as supply of services - Schedule III and IV [Section 3(3)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 6.1.4 Powers of the government in respect of supply Schedule III and IV [Section 3(4)]. . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.1.5 Composite or mixed supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.1.6 Meaning of the term “consideration”. . . . . . . . . . . . . . . . . . . . . . . . . 78 6.1.7 Whether supply by an individual, who is not engaged in business, also falls within the definition?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 6.1.8 Whether “supply” includes supply without the profit motive, such as, sale of scrap by transport corporation to reduce space?. . . . 79 6.1.9 Whether the term “supply” includes stock transfer within the entity?.79 6.1.10 Whether stock transfer (of goods) within the same entity will be taxable as “goods” or as “service”?. . . . . . . . . . . . . . . . . . . . . . . . . . 79 6.1.11 Can “recipient of supply” be treated as “supplier?. . . . . . . . . . . . . . . 79 6.1.12 What is “continuous supply”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 6.1.13 What is “outward supply” and “inward supply”?. . . . . . . . . . . . . . . . 80 6.2 Time of supply of goods – when taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 6.2.1 Time of supply of goods [Section 12] . . . . . . . . . . . . . . . . . . . . . . . . 81 6.2.2 Time of supply of vouchers, by whatever named called [Section 12(4)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 6.2.3 What are the provisions where time of supply could not be determined in accordance with earlier provisions? . . . . . . . . . . . . . . 83 6.3 Time of supply of services – when taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6.3.1 Time of supply in case of services. . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6.3.2 Time of supply of services subject to reverse charge [Section 13(3)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

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6.3.3

6.4 6.5

What is the time of supply of vouchers, by whatever named called? [Section 13(4)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 6.3.4 Is there any special provision in relation to the “associated enterprises”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 6.3.5 What are the provisions where time of supply could not be determined in accordance with earlier provisions? [Section 13(5)]. . 85 Change in rates of tax – Goods or Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Value of supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 6.5.1 What would be the value of taxable supply for levy of GST?. . . . . . 86 6.5.2 When are two persons stated to be related to each other? . . . . . . . . . 87 6.5.3 Inclusion of amount while determining the transaction value. . . . . . 87 6.5.4 Exclusion of discounts while determining transaction value. . . . . . . 88 6.5.5 When is a person required to refer the Valuation Rules?. . . . . . . . . . 88

Chapter 7 Concept of IGST - Inter-state supply, local supply, and imports. . . . 91 7.1 Present indirect tax structure – Inter-state transactions. . . . . . . . . . . . . . . . . . . . 91 7.1.1 Features of Central Sales Tax Act, 1956 (CST Act). . . . . . . . . . . . . . 91 7.1.2 Tax on Import of goods into India . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 7.1.3 Tax on import of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 7.2 IGST model for inter-state transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 7.2.1 Meaning of the term “IGST” and its need. . . . . . . . . . . . . . . . . . . . . 93 7.2.2 Features of the “IGST” mechanism. . . . . . . . . . . . . . . . . . . . . . . . . . 94 7.2.3 When supply of goods or services takes place in the course of interstate trade or commerce? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 7.2.4 When supply of goods or services takes place within the state? . . . . 95 7.2.5 Illustration – Computation of inter-state GST (IGST). . . . . . . . . . . . 97 7.3 Levy, collection, rates & exemptions under IGST [Section 5, 6]. . . . . . . . . . . . 98 7.3.1 Levy of IGST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 7.3.2 Taxable value under IGST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 7.3.3 Rates of IGST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 7.3.4 Exemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 7.4 Determination of place of supply (POS) of Goods and situs . . . . . . . . . . . . . . 100 7.4.1 Supply of goods other than supply of goods imported into, or exported from India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 7.4.2 Supply of goods imported into, or exported from India [Section 8]. 103 7.5 Determination of place of supply (POS) of services and situs . . . . . . . . . . . . . 103 Supply of services where the location of supplier of service 7.5.1 and the location of the recipient of service (both) are in India. . . . . 103 7.5.2 Supply of services where location of supplier orlocation of the recipient is outside India [Section 10] . . . . . . . . . . . . . . . . . . . . . . . 108

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7.6

Taxation of import of goods and services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 7.6.1 Import of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 7.6.2 Import of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 7.6.3 High seas sale of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 7.7 Stock transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 7.8 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Chapter 8 Exemptions under GST and zero rated supply. . . . . . . . . . . . . . . . . 117 8.1 Exempt supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Meaning of exempted supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 8.1.1 Exemptions under the CGST/SGST Act . . . . . . . . . . . . . . . . . . . . . 117 8.1.2 Exemptions under the ICGST Act . . . . . . . . . . . . . . . . . . . . . . . . . . 118 8.1.3 8.2 Non-taxable persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Who is a taxable person? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 8.2.1 8.2.2 Agriculturist. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 8.3 Zero rated supply and export of goods and services. . . . . . . . . . . . . . . . . . . . . 120 8.3.1 Meaning of zero-rated supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 8.3.2 Eligibility of input tax credit or refund on zero-rated supply. . . . . . 120 8.3.3 Export of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 8.3.4 Export of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 8.3.5 Deemed export. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 8.4 Threshold limit (basic exemption). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 8.4.1 Exemption limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 8.4.2 When the threshold limit is not applicable?. . . . . . . . . . . . . . . . . . . 122 8.5 FAQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Chapter 9 Goods v. services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 9.1 Why distinction is required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 9.2 Meaning of the term “goods” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 9.3 Meaning of the term “services”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 9.4 Intangible goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 9.5 Matters specified in Schedule II – Goods (or) Service. . . . . . . . . . . . . . . . . . . 128 Chapter 10 Rates of GST and revenue neutral rate (RNR). . . . . . . . . . . . . . . . . 131 10.1 Calculation of output tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 10.2 Rates of GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 10.3 Meaning of RNR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 10.4 Determination of RNR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 10.5 Factors for determination of RNR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 10.6 Success of GST -depends upon the ideal RNR. . . . . . . . . . . . . . . . . . . . . . . . . 134 10.7 Likely RNR in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 10.8 GST or VAT rate globally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 xvi

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Chapter 11 Input tax credit and input service distributor. . . . . . . . . . . . . . . . . . 137 11.1 Meaning of input tax credit (ITC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 11.2 Meanings of capital goods, input and input service . . . . . . . . . . . . . . . . . . . . . 139 11.2.1 Meaning of “capital goods” – [Section 2(19)]. . . . . . . . . . . . . . . . . 139 11.2.2 Meaning of “input” – [Section 2(52)]. . . . . . . . . . . . . . . . . . . . . . . . 139 11.2.3 Meaning of “input service” – [Section 2(53)] . . . . . . . . . . . . . . . . . 139 11.3 ITC during the transition period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 11.4 Conditions & restrictions in claiming of input tax credit (ITC) . . . . . . . . . . . . 141 11.4.1 Conditions for claiming ITC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 11.4.2 Manner of claiming ITC [Section 16(1)]. . . . . . . . . . . . . . . . . . . . . 142 11.4.3 Overall time limit for claiming ITC [Section 16(4)] . . . . . . . . . . . . 142 11.4.4 Restrictions in claiming ITC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 11.4.5 Banking Co., Financial Institutions and NBFC. . . . . . . . . . . . . . . . 144 11.4.6 Recovery of ITC wrongly taken. . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 11.5 Non-creditable goods or services [Section 17(4)]. . . . . . . . . . . . . . . . . . . . . . . 145 11.6 Goods transferred for job-work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 11.7 ITC in special circumstances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 11.7.1 Eligible for ITC on stock to a taxable person, who has applied for registration mandatorily for the first time. . . . . . . . . . . . . . . . . . 147 11.7.2 Eligible for ITC on stock to a taxable person, who has applied for registration voluntarily? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 11.7.3 If a taxable person ceases to pay tax under the composition levy and pays tax under the regular scheme, whether he would be entitled for ITC on stock? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 11.7.4 Where an exempt supply becomes taxable supply, whether the person would be entitled for the ITC on stock?. . . . . . . . . . . . . 149 11.7.5 What would happen to the ITC where there is a change in the constitution of a registered taxable person?. . . . . . . . . . . . . . . . . . . 149 11.7.6 What would happen to the ITC if the outward taxable supplies subsequently become exempt absolutely?. . . . . . . . . . . . . . . . . . . . 149 11.7.7 What would happen to the ITC where the taxable person switches over from regular scheme to composition scheme? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 11.7.8 Supply of capital goods on which ITC has been claimed earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 11.8 Utilization of credit [Section 44 (4), (5)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 11.9 Input service distributor (ISD). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 11.9.1 Who is input service distributor?. . . . . . . . . . . . . . . . . . . . . . . . . . . 151 11.9.2 Whether ISD requires registration under GST and file return? . . . . 151 11.9.3 Manner of distribution of credit [Section 21(1), (2)]. . . . . . . . . . . . 152

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11.9.4

Conditions or restrictions for distribution of credit [Section 21(3)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 11.9.5 Manner of recovery of credit excess distributed . . . . . . . . . . . . . . . 153 11.10 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Chapter 12 Composition scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 12.1 Scope and features of the composition scheme. . . . . . . . . . . . . . . . . . . . . . . . . 155 Who can opt for the composition scheme?. . . . . . . . . . . . . . . . . . . . 155 12.1.1 12.1.2 Who cannot opt for the composition scheme?. . . . . . . . . . . . . . . . . 155 12.1.3 Rate of composition levy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 12.1.4 Procedure to opt for composition levy. . . . . . . . . . . . . . . . . . . . . . . 156 12.2 Restrictions under the composition scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 12.3 Input tax credit on switch over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 12.3.1 Reversal of input tax credit where the taxable person switches over from regular scheme to composition scheme. . . . . . . . . . . . . . 157 12.3.2 Eligibility of the input tax credit where a taxable person, who was paying tax under the composition scheme, starts paying tax under the regular scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 12.4 Cancellation of permission or registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Chapter 13 Job work – special provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 13.1 Who is “job-worker” and “principal”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 13.1.1 Meaning of ‘job work’ and ‘job worker’. . . . . . . . . . . . . . . . . . . . . 159 13.1.2 Whether the term ‘job work’ includes ‘works contract’. . . . . . . . . . 160 13.1.3 Meaning of principal for the purposes of these provisions . . . . . . . 160 13.1.4 Treatment of job work as ‘service’. . . . . . . . . . . . . . . . . . . . . . . . . . 160 13.2 Privileges available to the principal and restrictions. . . . . . . . . . . . . . . . . . . . . 161 13.2.1 Input tax credit on inputs and capital goods sent for job work. . . . . 161 13.2.2 Special procedure for removal of goods under sec 55. . . . . . . . . . . 161 13.2.3 Supply of goods by the principal from the place of job worker. . . . 162 13.2.4 Supply of waste or scrap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 13.2.5 What would happen if the principal does not intimate under this section – Is he liable to pay tax on supply. . . . . . . . . . . . . . . . . 163 13.3 Job-worker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 13.3.1 Whether a job-worker is required to obtain registration?. . . . . . . . . 164 13.3.2 Whether goods, directly supplied from the job-worker’s premises, will be included in the aggregate turnover of job worker?. . . . . . . . 164 Chapter 14 E-commerce, TCS & supply of online data– special provisions. . . . 165 14.1 E-commerce. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 14.1.1 Meaning of ‘e-commerce’. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 14.1.2 Omission of the tem ‘Aggregator’ in the Revised Law. . . . . . . . . . 165 xviii

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14.1.3 Activities of the e-commerce operator [ECO]. . . . . . . . . . . . . . . . . 166 14.1.4 Threshold limit for registration - Not applicable to ECO. . . . . . . . . 167 14.1.5 When the ECO itself be deemed as supplier . . . . . . . . . . . . . . . . . . 167 14.2 Collection of tax (TCS) by e-commerce operators. . . . . . . . . . . . . . . . . . . . . . 167 14.2.1 Time of collection of TCS and its value. . . . . . . . . . . . . . . . . . . . . . 167 14.2.2 Rate of TCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Other obligations of the e-commerce operators. . . . . . . . . . . . . . . . 168 14.2.3 14.2.4 Claim of credit for the amount of TCS deposited by the ECO by the concerned supplier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 14.2.5 Whether the statement filed by the ECO be verified with the outward supplies of the actual supplier and what would happen in case of mismatch?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 14.2.6 Powers of the proper officer to issue notice upon the ECO. . . . . . . 169 14.2.7 Whether there could be any other penalties on ECO?. . . . . . . . . . . 170 14.3 Special provision for payment of tax by a supplier of online information and database access or retrieval services located outside India to specified person in the taxable territory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 14.3.1 Applicability of the provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 14.3.2 Meaning of “online information and database access or retrieval services�. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 14.3.3 Role of intermediary who arranges the services. . . . . . . . . . . . . . . . 171 14.3.4 Registration and payment of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Chapter 15 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 15.1 Need for registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 15.1.1 Why do I require registration?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 15.2 Types of registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 15.3 Mandatory registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 15.3.1 Who is liable for registration mandatorily under GST?. . . . . . . . . . 174 15.3.2 Time limit for taking registration [Section 23(1)] . . . . . . . . . . . . . . 174 15.3.3 Who is not liable to take registration? . . . . . . . . . . . . . . . . . . . . . . . 174 15.3.4 How to calculate aggregate turnover? . . . . . . . . . . . . . . . . . . . . . . . 175 15.3.5 When is the threshold limit not applicable?. . . . . . . . . . . . . . . . . . . 175 15.3.6 Whether registration is required in each state from where the person having same PAN is operating? . . . . . . . . . . . . . . . . . . . . . . 176 15.3.7 Whether the person can obtain separate registration for multiple business verticals in a state?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 15.4 Existing registered persons-transitional provisions. . . . . . . . . . . . . . . . . . . . . . 177 15.4.1 Liability for registration for existing registered persons? . . . . . . . . 177 15.4.2 Information and documents required to enroll with GST. . . . . . . . . 177 15.4.3 What will be the procedure of migration of registration to GST?. . 177 xix

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15.5 Voluntary registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 15.6 Registration by department (Suo-moto registration). . . . . . . . . . . . . . . . . . . . . 179 15.7 Input service distributor (ISD). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 15.8 Casual taxable person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 15.9 Non-resident . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 15.10 Unique Identity Number (UID) by UN Bodies etc. . . . . . . . . . . . . . . . . . . . . . 182 15.11 Unique Identity Number (UID) by government organization. . . . . . . . . . . . . . 183 15.12 Job worker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 15.12.1 Whether a job worker requires compulsorily registration? . . . . . . . 183 15.12.2 Whether principal is permitted to supply goods from the place of business of a job worker?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 15.13 Procedure for registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 15.13.1 Mandatory contents on the registration form. . . . . . . . . . . . . . . . . . 184 15.13.2 Documents required for registration. . . . . . . . . . . . . . . . . . . . . . . . . 184 15.13.3 What is the procedure for registration (other than non-resident and person required to deduct TDS or collect TCS)?. . . . . . . . . . . . 187 15.13.4 Whether all places of businesses are to be declared at the time of registration?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 15.13.5 Whether separate enrolment is required with Central and State authorities under GST?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 15.13.6 Whether small dealers or dealers having no IT infrastructure have any system for facilitation? . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 15.14 Effective date of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 15.15 Consequences of not applying for registration . . . . . . . . . . . . . . . . . . . . . . . . . 192 15.16 Format of registration number (GSTIN). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 15.17 Amendment of registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 15.17.1 Circumstances for amendment of registration. . . . . . . . . . . . . . . . . 193 15.17.2 Procedure for amendment of registration. . . . . . . . . . . . . . . . . . . . . 193 15.18 Cancellation of registration and revocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 15.18.1 Circumstances for cancellation of registration. . . . . . . . . . . . . . . . . 194 15.18.2 Procedure for cancellation of registration . . . . . . . . . . . . . . . . . . . . 195 15.18.3 Revocation of the cancellation order . . . . . . . . . . . . . . . . . . . . . . . . 195 15.19 FAQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 15.20 Registration format as per Draft GST Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Chapter 16 Returns under the GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 16.1 Purpose of returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 16.2 Persons responsible for filing returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 16.2.1 Whether there shall be separate returns for SGST, CGST, etc?. . . . 207 16.2.2 Who are responsible for filing the returns? . . . . . . . . . . . . . . . . . . . 207 16.3 Types of returns or reports and periodicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 xx

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16.4 16.5 16.6 16.7

16.8

16.9 16.10

16.11

16.12

16.13

16.14

Person-wise returns and periodicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 Other features of returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 Returns process flow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 Returns for outward supplies [GSTR–1]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 Persons liable to furnish GSTR-1. . . . . . . . . . . . . . . . . . . . . . . . . . . 211 16.7.1 16.7.2 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 Field structures of various tables in Form [GSTR-1]. . . . . . . . . . . . 213 16.7.3 16.7.4 Return structure for export and deemed export supply . . . . . . . . . . 213 16.7.5 Credit/debit notes [Section 31]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 16.7.6 Advances received against a supply to be made in future [Section 12 & 13]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 16.7.7 Can the taxable person submit the GSTR-1 details before the due date?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 16.7.8 Whether value for each transaction will be fed? What shall be the value if there is no consideration? . . . . . . . . . . . . . . . . . . . . . . . 214 16.7.9 Rectification of return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 Returns for inward supplies [GSTR–2]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 16.8.1 Process flow of form GSTR-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 16.8.2 Persons liable to furnish GSTR-2. . . . . . . . . . . . . . . . . . . . . . . . . . . 215 16.8.3 Components of form GSTR-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 16.8.4 Field Structures of various tables in form GSTR-2. . . . . . . . . . . . . 216 Monthly return [GSTR – 3]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 16.9.1 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Quarterly return by composition taxpayers [GSTR–4]. . . . . . . . . . . . . . . . . . . 219 16.10.1 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 16.10.2 Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Non-resident foreign taxpayer [GSTR–5]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 16.11.1 Meaning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 16.11.2 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 16.11.3 What returns are to be submitted? . . . . . . . . . . . . . . . . . . . . . . . . . . 220 ISD Return [GSTR–6]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 16.12.1 Meaning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 16.12.2 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 16.12.3 Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 TDS Return [GSTR – 7]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 16.13.1 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 16.13.2 Return submission or TDS certificate. . . . . . . . . . . . . . . . . . . . . . . . 222 16.13.3 Whether TDS certificates are to be uploaded?. . . . . . . . . . . . . . . . . 222 Return by e-commerce operator [GSTR–8] . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 16.14.1 Requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 16.14.2 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 xxi

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16.15 Inward supplies details by persons having UIN [GSTR–11] . . . . . . . . . . . . . . 223 16.15.1 Return submission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 16.15.2 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 16.16 Annual return[GSTR–9] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 16.16.1 Which taxable person needs to submit annual return?. . . . . . . . . . . 223 16.16.2 Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 16.17 Annual return for composition taxpayers [GSTR–9A]. . . . . . . . . . . . . . . . . . . 224 16.18 Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 16.19 ITC (input tax credit) eligibility & matching . . . . . . . . . . . . . . . . . . . . . . . . . . 226 16.19.1 Provisional eligibility of ITC [Section 36]. . . . . . . . . . . . . . . . . . . . 226 16.19.2 Matching of ITC [Section 37] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 16.19.3 Obligation of supplier [Section 37] . . . . . . . . . . . . . . . . . . . . . . . . . 226 16.19.4 Obligation of recipient [Section 37]. . . . . . . . . . . . . . . . . . . . . . . . . 227 16.19.5 Illustration [Section 37] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 16.19.6 Matching, reversal and reclaim of reduction in output tax liability [Section 38]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 16.19.7 Matching process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 16.20 Revision of return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 16.21 Non-filers, late filers & short filers of returns. . . . . . . . . . . . . . . . . . . . . . . . . . 229 16.21.1 Non-filers & late return filers [Section 41]. . . . . . . . . . . . . . . . . . . . 229 16.21.2 Short filers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 16.22 First return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 16.23 Final return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 16.24 Late fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 16.25 Extension of filing dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 16.26 Methods of uploading the returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 16.26.1 How the returns can be uploaded?. . . . . . . . . . . . . . . . . . . . . . . . . . 231 16.26.2 Whether scanned copies of invoices are to be uploaded along with returns?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 16.27 Signing of returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 16.28 FAQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 16.29 Field structure of tables in Form GSTR-01 and GSTR-02. . . . . . . . . . . . . . . . 234 Chapter 17 Payment of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 17.1 Broad features. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 17.2 Nature of taxes to be paid under GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 17.3 Who is liable for payment of GST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 17.4 Methods of payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 17.5 Modes of payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

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17.6 Payment of GST - Other points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 17.6.1 Sequence of adjustment of payments against dues [Section 44(8)]. 243 17.6.2 Is pre-registration of credit card necessary in the GSTN portal for the GST payment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 17.6.3 Payment of tax in installments [Section 74]. . . . . . . . . . . . . . . . . . . 243 17.6.4 Identification number for each transaction. . . . . . . . . . . . . . . . . . . . 243 Date of deposit of the tax dues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 17.6.5 17.6.6 Can payment of Over the Counter (OTC) exceed INR 10,000/-? . . 244 17.6.7 Whether mandate form needs to be generated for payment by way of NEFT/RTGS?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 17.7 Role of the banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 17.7.1 What is role of banks in the GST regime?. . . . . . . . . . . . . . . . . . . . 244 17.7.2 What is an E-FPB?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 17.8 Basic features of challans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 17.8.1 Who can generate challans?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 17.8.2 Process of generation of challans. . . . . . . . . . . . . . . . . . . . . . . . . . . 246 17.8.3 Challan identification number (CIN) and its relevance . . . . . . . . . . 246 17.8.4 What would happen if payment is made but CIN is not generated?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 17.9 Tax wrongly deposited – IGST v CGST/SGST. . . . . . . . . . . . . . . . . . . . . . . . . 247 17.9.1 From inter-state supply to intra-state supply . . . . . . . . . . . . . . . . . . 247 17.9.2 From intra-state supply to inter-state supply . . . . . . . . . . . . . . . . . . 247 17.10 FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 17.11 Draft GST payment formats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 Chapter 18 Tax deduction at source. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 18.1 Who is required to deduct TDS?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 18.2 Rate of TDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 18.3 When to deduct TDS? Is there any basic exemption?. . . . . . . . . . . . . . . . . . . . 250 18.4 Which goods or services are covered? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 18.5 Obligations or responsibilities of the deductor. . . . . . . . . . . . . . . . . . . . . . . . . 250 18.6 Procedure for registration or cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 18.7 Penalties on deductor for various defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 18.8 How will the amount of TDS be utilized by the supplier? . . . . . . . . . . . . . . . . 252 18.9 What would happen if there is excess or erroneous deduction?. . . . . . . . . . . . 252 18.10 Transitional provisions in respect of TDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 Chapter 19 Refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 19.1 Circumstances resulting in refund to taxpayer . . . . . . . . . . . . . . . . . . . . . . . . . 253 19.1.1 Circumstances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 19.1.2 Refund of unutilized input tax credit under section 48(3). . . . . . . . 253 19.1.3 Refund related to export of goods or services . . . . . . . . . . . . . . . . . 254 xxiii

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19.1.4 19.1.5 19.1.6

Refund related to SEZ developer/SEZ unit . . . . . . . . . . . . . . . . . . . 254 Refund of IGST paid on supply of goods to outbound tourist. . . . . 254 Refund to United Nation Organisations, embassies, diplomats, and other persons notified under sec 49. . . . . . . . . . . . . . . . . . . . . . 254 19.2 Time limit for filing of refund application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 19.2.1 Time limit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 Meaning of the term “relevant date” . . . . . . . . . . . . . . . . . . . . . . . . 255 19.2.2 19.3 Procedure for claiming refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 19.3.1 What are the documents to be submitted for claiming refund?. . . . 256 19.3.2 Refund related to input tax credit. . . . . . . . . . . . . . . . . . . . . . . . . . . 258 19.3.3 Tax wrongly deposited – IGST v CGST/SGST. . . . . . . . . . . . . . . . 258 19.4 Disposal of refund application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 19.4.1 Acknowledgement of refund claim . . . . . . . . . . . . . . . . . . . . . . . . . 258 19.4.2 Provisional refund to exporter of goods or services. . . . . . . . . . . . . 259 19.4.3 Disposal of refund related to export of goods or services . . . . . . . . 259 19.4.4 Disposal of refund related to casual or non-resident taxable persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 19.4.5 Refund related to inward supplies to certain persons. . . . . . . . . . . . 260 19.4.6 Refund to United Nation Organisations, embassies, diplomats, and other persons notified under sec 49 - Time limit . . . . . . . . . . . . . . . 261 19.4.7 Time limit for disposal of refund claim. . . . . . . . . . . . . . . . . . . . . . 261 19.4.8 Order sanctioning refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 19.4.9 Circumstances when the amount of refund shall be credited to the Consumer Welfare Fund instead of payment to the claimant. . . . . . 261 19.5 Withholding of refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 19.6 Interest on delayed refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 19.7 FAQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 19.8 Draft GST refund formats. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 Chapter 20 Invoice, accounts and records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 20.1 Tax invoice and its contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 20.1.1 What is the tax invoice?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 20.1.2 Who is required to issue tax invoice/bill of supply and under what circumstances?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 20.1.3 Contents of tax invoice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 20.1.4 Indication of amount of tax on the tax invoice [Section 30] . . . . . . 267 Time of issuance of tax invoice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 20.1.5 20.1.6 When can the invoice be revised? . . . . . . . . . . . . . . . . . . . . . . . . . . 268 20.1.7 What are the contents of the revised invoice? . . . . . . . . . . . . . . . . . 269

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20.2 Tax invoice and manner of its issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 20.2.1 Supply of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 20.2.2 Supply of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 20.3 Bill of supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 20.3.1 Who is required to issue bill of supply and under what circumstances?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 Contents of bill of supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 20.3.2 20.3.3 Whether issuance of bill of supply is mandatory even for petty amount?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 20.4 Receipt voucher in case of advance collection. . . . . . . . . . . . . . . . . . . . . . . . . 271 20.5 Credit and debit notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 20.5.1 Circumstances when a debit note or credit note is issued . . . . . . . . 272 20.5.2 Time limit of declaration of debit/credit note in the return (Section 31 read along with section 32, 33, 37 & 38) . . . . . . . . . . . 273 20.5.3 Contents of a debit or credit note. . . . . . . . . . . . . . . . . . . . . . . . . . . 273 20.6 Tax invoice in case of input service distributor (ISD). . . . . . . . . . . . . . . . . . . . 274 20.7 Tax invoice in case of banks, financial institution & NBFC. . . . . . . . . . . . . . . 274 20.8 Tax invoice in case of goods transport agency (GTA) . . . . . . . . . . . . . . . . . . . 275 20.9 Tax invoice in case of passenger transportation service. . . . . . . . . . . . . . . . . . 275 20.10 Invoice in case of Reverse Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 20.11 Accounts and records - maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 20.12 Audit of accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277 20.13 Accounts and records - retention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 20.14 Draft GST invoice format. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 Chapter 21 Assessment & audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 21.1 Self-assessment [Section 57]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 21.2 Provisional assessment [Section 58]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 21.3 Scrutiny of returns[Section 59]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 21.4 Assessment of non-filers of returns [Section 60]. . . . . . . . . . . . . . . . . . . . . . . . 281 21.5 Assessment of unregistered persons [Section 61]. . . . . . . . . . . . . . . . . . . . . . . 282 21.6 Summary assessment [Section 62] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 21.7 Audit [Section 63]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 21.8 Special audit [Section 64]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 21.9 Audit by CAG [Section 65]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 Chapter 22 Penalties and prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 22.1 Penalties under the Revised Model GST Law. . . . . . . . . . . . . . . . . . . . . . . . . . 287 22.2 Offences under the Revised Model GST Law. . . . . . . . . . . . . . . . . . . . . . . . . . 290

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22.3 Confiscation of goods and/or conveyances and fine. . . . . . . . . . . . . . . . . . . . . 291 22.3.1 Circumstances when goods and/or conveyances can be confiscated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 22.3.2 Is there any penalty in addition to confiscation of goods?. . . . . . . . 292 22.3.3 Can confiscation be avoided by paying any fine or compounding amount?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 Chapter 23 Appeal, advance ruling and information returns. . . . . . . . . . . . . . . 293 23.1 Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 23.2 Advance ruling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 23.3 Information returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 23.4 Drawal of samples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 23.5 Taking assistance from IT Professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 23.6 GST compliance rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 23.7 Publication of information about the persons. . . . . . . . . . . . . . . . . . . . . . . . . . 296 23.8 Anti-profiteering measure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 Chapter 24 Transitional provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 24.1 Existing tax authorities on the appointed day. . . . . . . . . . . . . . . . . . . . . . . . . . 299 24.2 Existing taxpayers- registration on the appointed day under the Central Acts and the State Acts – Section 166. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 24.3 Carried over amount in the returns on the appointed day under the Central Acts and the State Acts – Section 167. . . . . . . . . . . . . . . . . . . . . . . . . . 299 24.4 Unavailed CENVAT on capital goods on the appointed day under the Central Acts – Section 168 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 24.5 Unavailed VAT on capital goods on the appointed day under the State Acts – Section 168 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 24.6 Unavailed CENVAT/VAT on inputs held in stock on the appointed day under the Central Acts – Section 169. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 24.7 Unavailed CENVAT/VAT on inputs held in stock on the appointed day under the State Acts – Section 169. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 24.8 Unavailed/Unclaimed CENVAT on inputs held in stock on the appointed day under the Central Acts– Section 170. . . . . . . . . . . . . . . . . . . . . 302 24.9 Inputs received after the appointed day– Section 171. . . . . . . . . . . . . . . . . . . . 302 24.10 Paying tax under composition scheme on the appointed day and paying GST under regular scheme under the Central Acts and State Acts – Section 172 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 24.11 Return of taxable goods in GST regime, which were exempt in earlier lawtaxability qua purchaser under the Central Acts and State Acts – Section 173 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 24.12 Return of taxable goods in GST regime, which were also taxable in earlier law - under the Central Acts and State Acts – Section 174 . . . . . . . . . . 304 xxvi

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24.13 Removal of inputs for job work before the appointed day and return of goods after that day - under the Central Acts and State Acts – Section 175. . . 304 24.14 Removal of semi-finished goods for job work before the appointed day and return of goods after that day - under the Central Acts and State Acts– Section 176. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 24.15 Removal of finished goods to carry certain processes before the appointed day and return of goods after that day- under the Central Acts and State Acts – Section 177. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 24.16 Upward revision of price – supplementary invoice or debit note raised in GST- under the Central Acts and State Acts – Section 178. . . . . . . . . . . . . . . . 305 24.17 Downward revision of price – supplementary invoice or credit note raised in GST- under the Central Acts and State Acts – Section 178. . . . . . . . . . . . . . 306 24.18 Disposal of refund claims filed before the appointed day - under the Central Acts and State Acts – Section 179 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 24.19 Disposal of refund claims in respect of export - under the Central Acts – Section 180. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 24.20 Disposal of refund claims in respect of services not provided - under the Central Acts – Section 181 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 24.21 Disposal of claims of Cenvat credit or ITC filed through appeal, revisions, review, etc. under the earlier law - under the Central Acts and State Acts – Section 182. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 24.22 Finalization of proceedings relating to output duty or tax liability initiated before the appointed day - under the Central Acts and State Acts – Section 183. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 24.23 Treatment of the amount recovered or refunded in pursuance of assessment or adjudication proceedings- under the Central Acts and State Acts – Section 184. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 24.24 Treatment of the amount recovered or refunded pursuant to revision of returns- under the Central and State Acts – Section 185. . . . . . . . . . . . . . . . . . 308 24.25 Treatment of long term construction/works contracts under the Central Acts and State Acts – Section 186. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 24.26 Progressive or periodic supply of goods or services under the Central Acts and State Acts – Section 187. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 24.27 Taxability of supply of services under the Central Acts and State Acts– Section 188. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 24.28 Taxability of supply of goods under the Central Acts and State Acts – Section 189. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 24.29 Distribution of Cenvat by input service distributor - under the Central Acts – Section 190 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 24.30 Transfer of unutilized credit by taxable person having centralized registration - under the Central Acts – Section 191. . . . . . . . . . . . . . . . . . . . . . 309 xxvii

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24.31 Tax paid on goods or capital goods lying with agents as on the appointed day to be allowed as credit- under the State Acts – Section 192 & 193. . . . . . 310 24.32 Treatment of branch transfers – ITC already reversed- under the State Acts – Section 194. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 24.33 Goods sent on approval basis are returned or rejected, on or after appointed day- under the State Acts – Section 195. . . . . . . . . . . . . . . . . . . . . . 310 24.34 Deduction of tax at source (TDS)– Section 196. . . . . . . . . . . . . . . . . . . . . . . . 311 24.35 Availing Cenvat Credit in certain cases - under the Central Acts – Section 197 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 24.36 Transition provisions under the IGST Act – Section 21 of the Revised Model IGST Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 24.37 Authors’ observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 Chapter 25 GST Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 25.1 What is GST Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 25.2 Mandate of GST Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 25.3 Functions of GST Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 25.4 Services by GST Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316 25.5 Managed service provider (MSP) for GSTN. . . . . . . . . . . . . . . . . . . . . . . . . . . 317 25.6 Functions and role of stake-holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 25.7 Taxpayers and GSTN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 25.8 Government authorities and GSTN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 25.9 Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 Concept of GST eco-system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 25.9.1 25.9.2 Whether information filed on the GST common portal will remain confidential & secure? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 Chapter 26 Industry – impact, expectations and transition. . . . . . . . . . . . . . . . . 321 26.1 India’s GST Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 26.2 Impact – generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 26.3 Impact on various sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 26.3.1 Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 26.3.2 Traders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 26.3.3 Manufacturers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 26.3.4 Works contractors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 26.3.5 Leasing companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 26.3.6 Intangible goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 Exempted units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 26.3.7 26.3.8 Power sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 26.3.9 Telecommunication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 26.3.10 Alcohol for human consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 26.3.11 Petroleum and petroleum products. . . . . . . . . . . . . . . . . . . . . . . . . . 331 xxviii

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26.3.12 International trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 26.3.13 Service providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 26.3.14 Event managers and hotels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 26.3.15 Land and real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 26.4 Expectations from GST in general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336 26.5 Transition issues for the industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 26.6 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 Chapter 27 GST in other countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 27.1 GST in Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 27.2 GST/HST in Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 27.3 GST in Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 27.4 Indirect taxes in UK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 Annexures Annexure I Annexure II Annexure III Annexure IV Annexure V

Annexure VI

Annexure VII

Annexure VIII

Annexure IX

Amended/Inserted Articles by the Constitution (101st Amendment) Act, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347 Model GST Law (Revised). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357 Model IGST Law (Revised). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 Goods and Services Tax (Compensation to the States for Loss of Revenue) Bill, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 Draft Goods and Services Tax - Registration Rules, 20-- . . . . . . . . 547 Draft Goods and Services Tax Rules, 20-- Registration Formats . . 557 Draft Goods and Services Tax - Invoice Rules, 20-- . . . . . . . . . . . . 627 Draft Format under Goods and Services Tax Rules Invoice Rules, 20--. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632 Draft Goods and Services Tax - Payment Rules, 20-- . . . . . . . . . . . 635 Draft Goods and Services Tax Rules, 20-- Payment Formats . . . . . 639 Draft Goods and Services Tax - Refund Rules, 20--. . . . . . . . . . . . . 651 Refund Forms for Centre and State . . . . . . . . . . . . . . . . . . . . . . . . . 657 Draft Goods and Services Tax - Return Rules, 20--. . . . . . . . . . . . . 677 Draft Goods and Services Tax Rules, 20-- Return Formats. . . . . . . 689

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Revised Model GST Laws Highlights

The Revised Model GST Laws released in November 2016 brought some key changes vis-à-vis the Laws released in June 2016 in CGST/SGST/IGST laws. In this chapter, highlights of the Revised GST Law and key changes are compiled.

Scope of Supply (A) •

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Revised Model GST Law Goods: Amendments in definition: o Securities excluded o Actionable claims included; and corresponding deletion from definition of services. In the erstwhile model law, actionable claim was defined as services.

Intangible property: The explanation, which excluded intangible property from the scope of goods, has been deleted from the definition of goods.

Thus, scope of the term ‘goods’ is widened to include intangibles goods also. Nevertheless, when supply of intangible goods is taxable as goods or services, would be decided in accordance with schedule II of the Revised Model GST Law. Money: The words “any such similar instrument” have been replaced with “any other instrument recognized by RBI”. Accordingly, only the instruments which are recognised by RBI will be treated as money.

Services: Definition of ‘Services’ has been amended to include money conversion activity; but money and securities have been excluded.

Works contract: The definition of works contract, which earlier included both movable and immovable property, has been confined only to immovable properties. It means supplies of goods and services in relation to works contract on movable property would be evaluated either as composite/mixed supply or as job work.

Distinct person: Units of same legal entity with different registrations shall be treated as distinct persons (Sec 10). Supplies of goods and services

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between such distinct persons including stock transfers without consideration shall be deemed as supply under Schedule I. Agency transactions: Transactions between principal and agent in relation to supply of goods shall be covered under ‘supply without consideration’ under Schedule I. Import of services: Scope of supply is now confined to the importation of services with consideration except when received from a related person or its foreign establishment in the course or furtherance of business under Schedule I. Public authorities: Various activities of the government as public authorities have been treated as neither supply of goods nor supply of services under Schedule IV. Aggregator: Special Provisions in relation to aggregator have been deleted. These are now covered within the term ‘e-commerce’.

Disposal of business: Tax on disposal of business assets under Schedule I shall be payable only in cases where input tax credit has been availed on such assets.

Non-business use/deregistration: Controversial clauses 2, 3 and 4 of the erstwhile Schedule I dealing with supplies without consideration have been deleted. These clauses are – 2. Temporary application of business assets to a private or non-business use.

3. Services put to a private or non-business use.

4. Assets retained after deregistration.

Employee services: Under erstwhile GST Law, employee was considered as non-taxable person; whereas, under the revised GST Law, services by an employee shall neither be treated as a supply of goods nor a supply of services under Schedule III. Composite supplies o Composite supply has been defined to include bundled supply of goods and services one of which is principal supply. o Definition of principal supply has been introduced to mean supply which constitutes the predominant element of a composite supply, and to which any other supply forming part of that composite supply is ancillary. o Tax liability of composite supply shall be determined on the basis of rate and other provisions applicable to the principal supply.

Mixed supplies o Concept of mixed supply has also been introduced. Mixed supply means two or more individual supplies of goods/services, made in

Revised Model GST Laws - Highlights

o o (B) • •

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conjunction with each other for a single price, where such supply does not constitute a composite supply.

This shall cover the transactions of bundled goods and services, supply of which are not dependent on each other.

Tax liability shall be determined based on the supply which attracts the highest rate of tax.

Revised Model IGST Law IGST on imports: To be levied in accordance with sec 3 of Customs Tariff Act along with Basic Customs Duty on the value as determined under Customs Act. Custom frontiers: Supply of goods in the course of import till they cross customs frontiers shall be deemed to be inter-state supply. In the GST Council meeting held on 16/17.01.2017, it was decided that states would also have powers to levy tax on economic activity within 12 nautical miles of territorial waters even though such rights constitutionally vest with the Centre.

High sea supplies: Revised IGST Law specifically provides that IGST on import of goods shall be payable only when the duties of customs are payable. Therefore, high-sea supplies shall continue to be exempt under GST Laws.

Zero-rated supplies: It shall comprise of (i) exports, and (ii) supplies made to SEZ (developer and unit).

Supply to or by SEZ: These supplies shall be deemed to be inter-state supply even if both SEZ and DTA (Domestic Tariff Area) are located within the same state.

Supplies not qualifying as intra-state: These shall be deemed as interstate supplies. Possible intention could be to cover supplies to exclusive economic zones etc.

Exemptions: If exemption to any goods or services is provided under CGST law, the exemption would be available under IGST law as well. It is not clear whether similar exemptions would also be available to other states to retain uniformity across India as one market one rate.

Time of Supply – Revised Model GST Law • •

Events for determining time of supply of goods and services have been rationalized in the revised law.

Taxable event for supply of goods/services shall be: o date of issue of invoice; or o date by which invoice is required to be issued under sec 28; or 3

Handbook of GST in India – Concepts & Procedures, 2e

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o receipt of payment, whichever is earlier.

Time of supplies attracting tax under Reverse Charge shall be: o For goods - Receipt of goods; or - Date of payment; or - 30 days from the date of invoice, whichever is earlier. o For services - Date of payment; or - 60 days from the date of invoice, whichever is earlier Time of Supply of voucher: Specific provisions to determine time of supply of vouchers have been introduced. o If the supply is identifiable  at the time of issuance of voucher. o In other cases the redemption of vouchers.

Associated enterprises: Date of entry in books of account is now relevant only in case of services imported from associated enterprises.

Place of Supply – Revised Model IGST Law •

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4

Place of supply for goods shall continue to be same, except in case of import or export of goods, which shall be: o Location of importer for import of goods; and o For export of goods, the location shall be outside India.

Place of supply of services - different place of supply rules prescribed where: o Location of supplier and recipient are in India; and o Location of supplier or recipient is outside India.

Concepts of intermediary services, online information and database access or retrieval services (OIDAR), performance based services introduced for this category In case where both the location of supplier and receiver are in India and the immovable property or event is held outside India, the place of supply shall be the location of the recipient.

In case where location of either supplier or receiver is outside India, provisions similar to current Place of Provision of Service Rules under service tax introduced.

Revised Model GST Laws - Highlights

Registration & Tax Rates (A) • •

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Revised Model GST Law CGST and SGST rate capped at 14% each.

Exempt Supply and Tax rates: Earlier reference of “goods/services specified under Schedule…” and “good/services at the rates specified in the Schedule…..” have been replaced with “which attract nil rate of tax” and “at such rates as may be notified”. It means that exempted categories of goods and services and tax rates would come by way of notification rather than Schedules to the Act. Definition of aggregate turnover: has been enlarged to include inter-state supplies. However, non-taxable supplies have been excluded from the definition.

Threshold limit for registration: Increased to INR 20 lakhs (INR 10 lakhs for north eastern and other specified states) as against INR 10 lakhs (INR 5 lakhs for north eastern and other specified states).

Mandatory registration: Introduced for overseas supplier supplying online information and database access or retrieval (OIDAR) services to unregistered persons in India.

Business vertical: The erstwhile definition was referring to Accounting Standard 17 issued by the Institute of Chartered Accountants of India.

Now, the definition incorporates all the ingredients for defining the term ‘business vertical’.

Casual/non-resident taxable person: They shall be required to apply for registration at least 5 days prior to the commencement of business; and may commence the business only after the issuance of certificate of registration.

Provisions for amendment by person having UIN (unique identity number) has also been introduced.

Composition Scheme o Earlier only traders were covered under composition scheme where the minimum tax rate of 1% was prescribed. Under the revised law, even the manufacturers have been included within the scope of the scheme with minimum tax rate of 2.5% of the turnover, under the CGST Act & SGST Act each. o Composition scheme is not available to service providers. o Earlier confusion regarding ‘inter-State supplies of goods’: whether same includes inter-state inward supplies, has been removed by replacing with ‘inter-State outward supplies of goods’.

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(B) •

TDS registration under GST: Tax Deduction and Collection Account Number (TAN) issued under Income-tax Act, instead of PAN,shall be required in order to be eligible for grant of registration.

Revised Model IGST Law IGST rate capped at 28 percent.

Valuation – Revised Model GST Law New inclusions o Interest or late fee or penalty on delayed payment of consideration for any supply.

Exclusions o Subsidies provided by the Central/State government which are directly linked to price of goods and services shall not form part of the transaction value. Now, the definition of consideration also excludes such subsidies. o Post supply discount shall be excluded only if the same has been established as per the agreement, provided the recipient reverses the input tax credit attributable to the discount.

Invoicing – Revised Model GST Law  Instead of tax invoice, bill of supply shall to be issued under composition scheme and supply of exempt goods/services.  Recipient to issue an invoice for supplies taxable under reverse charge mechanism on the date of receipt of goods or services from a person who is not registered under the GST Law.  Tax invoice would include revised invoices and document issued by Input Service Distributor (‘ISD’).  Requirement to issue a receipt voucher for receipt of advances introduced.  Credit note can also be issued for return of goods or deficiency in provision of services.  Invoice provisions introduced for continuous supply of goods/services; goods sent on approval; revised invoice by new registrants; etc

Input tax credit (ITC) – Revised Model GST Law  Definition of capital goods has been amended to mean “goods” the value of which is capitalized in the books of account of the person claiming credit.

100% of input tax credit would be available at the time of receipt of goods 6

Revised Model GST Laws - Highlights

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except on pipelines and telecommunication towers as specified where it would be in three yearly installments.

Definition of ‘input’ has been modified to mean any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.

Restriction earlier imposed on the availment of credit on motor vehicles procured and used captively for transportation of goods has now been removed.

ITC on input services can be availed subject to the condition that the value of the invoice is paid within 90 days. There is no similar provision for credit on goods.

ITC on rent-a-cab, life insurance, health insurance, which the government notifies as service and which is obligatory for an employer to provide to its employee under any law for the time being in force, shall be allowed as eligible credit.

ITC on goods or services used for construction of an immovable property, other than plant and machinery, shall not be allowed even if such property is used in course or furtherance of business.

ITC of works contract services shall be eligible in the hands of works contractor, thereby removing earlier confusion of whether credit shall pass between sub-contractor and contractor.

ITC on pipelines and telecommunication tower fixed to earth by foundation or structural support (including such foundation and structural support) could be availed in three yearly installments.

ITC shall not be eligible on the tax paid on the goods detained or confiscated or cases involving litigation in respect of fraud etc.

ITC shall not be allowed on the goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

Refunds (A) Revised Model GST Law  Amount of provisional refund in case of exports has been increased from 80% to 90%.  Period of 90 days has been reduced to 60 days for grant of refund. Interest will be payable for any delay beyond 60 days (B) Revised Model IGST Law  Similar to in the case of goods, option of exporting services with payment of IGST (with corresponding refund) or without payment of IGST (under bond) has been introduced.

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Handbook of GST in India – Concepts & Procedures, 2e

 The SEZ developer or unit receiving zero rated supply shall be eligible to claim refund of IGST paid on such supplies. Supplier making supplies to SEZ shall be able to claim ITC in respect of such supplies.  Refund of IGST would also be available to outbound tourists subject to specified conditions  Where IGST has been paid on import of goods under Customs Act, the importer can claim ITC under IGST law.

TDS/TCS  Rate of TDS has been prescribed as 1% of the payment made or credited to the supplier, under the CGST Act and the SGST Act each; and 2% under the IGST Act.  Rate of TCS has been prescribed as 1% of the net value of taxable supplies [Gross (-) returns] under the CGST Act and the SGST Act each; and 2% under the IGST Act.

Job Worker – Revised Model GST Law  The time limit for the goods to be received back from the job worker has been increased from 180 days to 1 year for inputs and from 2 years to 3 years for capital goods.  In the erstwhile model law, the principal was required to obtain specific permission if he wants to send goods to the job worker without payment of tax.

Now, he is required to intimate the appropriate authority.

E-commerce, Aggregator and OIDAR E-commerce provisions have been redefined.

• E-com means supply of goods and services including digital products over digital network or electronic network.

• E-com operator (ECO) to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

• ECO has been made liable to pay tax in respect of notified services. For other services, provisions of tax collection at source (‘TCS’) would apply.

Maximum rate of TCS has been specified as 2 percent.

• Composition scheme cannot be opted by vendors supplying goods/services through ECO. Aggregator • Concept of aggregator has been done away with; and would be governed under E-com provisions.

8

Revised Model GST Laws - Highlights

OIDAR • Recently introduced amendments on online information and database access or retrieval (OIDAR) services under service tax laws have been incorporated in the Revised Model IGST law.

Transitional Credits (A) •

•

•

Revised Model GST Law Transition credit of carried forward in returns substituted under sec 167 For VAT and Entry Taxes o Claim shall be made within 90 days from the appointed day. o As per erstwhile Model GST Law, the credit should be eligible both under the existing law as well as the GST law. Now, the criteria of eligibility under the existing law for allowing the credit has been removed. o VAT/Entry tax credit attributable to CST transactions where forms could not be collected within the period stipulated under Rule 12 of Central Sales Tax (Registration & Turnover) Rules, 1957 cannot be transitioned as credit in electronic credit ledger account. The said credit shall be available as refund when the said claims are substantiated through collection of the forms.

For CENVAT o As per erstwhile Model GST Law, the credit should be eligible both under the existing law as well as the GST law. Now, the criteria of eligibility under the existing law for allowing the credit has been removed.

Introduction of Credit of specified unavailed Cenvat/VAT/entry tax and central taxes/state taxes embedded in inventory held in stock on the appointed day available as credit to unregistered/exempt dealers/works contractor/first stage dealer/second stage dealer, etc. under Sec 169. The conditions prescribed are: o Such transition credit shall be restricted to stock procured up to 12 months prior to appointed day; and o The benefit of such credit is passed to the recipient by way of reduced prices.

Sec 171 - Credit of eligible duties/taxes including entry tax in respect of inputs/input services in transit has been introduced. Necessary conditions for claim are:

9

Handbook of GST in India – Concepts & Procedures, 2e

o

•

•

•

•

•

10

inputs or input services can be received on or after the appointed day but the duty/tax in respect of same has been paid before the appointed day; and o The invoice or any other duty/tax paying document was recorded in the books of accounts of such person within a period of 30 days from the appointed day (extendable to further 30 days).

Disposal of refund claims in respect of export introduced through sec 180. Disposal shall be as per provisions of existing law, but the conditions shall be: o Duty/Tax, paid before the appointed date, in respect of goods/services exported before or after the appointed day but which has not been carried over in GST Returns; and o Refund claim has been filed after the appointed day.

Sec 181 - Disposal of refund claims in respect of services not provided shall be as per provisions of existing law, but o Tax has been deposited under the earlier law in respect of services not provided; and o Refund claim has been filed after the appointed day.

Taxability of supply of goods/services has been defined under sec 188 and 189 as under o Tax in respect of the taxable goods/services shall be payable under the earlier law to the extent the point of taxation in respect of such services arose before the appointed day, o where the portion of the supply of goods/services is not covered by this section, such portion shall be liable to tax under the GST Act. Transfer of unutilized credit by taxable person having centralized registration under the Central Acts has been introduced under sec 191.

The conditions are: o The person has obtained registration under GST Law and the credit is admissible under the GST Law. o He has Cenvat credit in the return furnished immediately before the appointed day. This return (original/revised) must be filed within 3 months from the appointed day where the credit has been reduced from that claimed earlier. o He can take such Cenvat credit in the GST Return. He may also transfer the credit to his other GSTIN with same PAN. Sec 197 –Provisions for availing Cenvat Credit have been introduced where the same has been reversed due to non-payment of the consideration within a period of 3 months. Such credit can be reclaimed provided that the

Revised Model GST Laws - Highlights

taxable person has made the payment of the consideration for that supply of services within a period of 3 months from the appointed day.

(B)

Revised Model IGST Law Sec 21 - Import of services or inter-State supply of goods/services made after the appointed day shall be liable to tax under the GST Act regardless of whether such transactions had been initiated before the appointed day.

However, if the tax on such import or inter-State supply had been paid in full under the earlier law, no tax shall be payable on such import or inter-state supply under GST If the tax on such import of services had been paid in part under the earlier law, balance amount of tax shall be payable on such import or inter-state supply under GST. A transaction shall be deemed to have been initiated before the appointed day if either the invoice relating to such supply or payment, either in full or in part, has been received or made before the appointed day.

Other provisions – Revised Model GST Law  New provisions for anti-profiteering have been introduced under sec 163.

The central government may constitute an Authority, or entrust an existing Authority constituted under any law, to examine whether o input tax credits availed by any registered taxable person; or o the reduction in the price on account of any reduction in the tax rate, have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.  Under sec 143, the Commissioner of CGST/SGST or an authorized officer may take samples of goods from the possession of any taxable persons, where he considers it necessary, and provide a receipt for any samples so taken.  Assistance from IT Professional – Sec 144: Any officer not below the rank of Deputy/Assistant Commissioner can take assistance from IT Professional at any stage of scrutiny, enquiry, investigation or any other proceedings, having regard to the nature and complexity of the case and the interest of revenue if he is of the opinion that the information pertaining to a taxable person stored on a computer system does not reveal correct details for extraction of information from such computer system.  Power of CAG to call for information for audit has been introduced under sec 65 whereby the proper officer shall, upon request made in this behalf by CAG, make available information, records and returns furnished under the GST laws, required for conduct of audit.

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Handbook of GST in India – Concepts & Procedures, 2e

Compensation Bill and GST Cess  New bill called GST (Compensation to the States for loss of revenue) Bill, 2016 has been introduced to provide: o Manner of providing compensation to States for loss of revenue on account of introduction of GST, o Levy of GST Compensation Cess (‘Compensation Cess’) on value of supply of goods and services in India, import of goods and supplies taxable on reverse charge basis.  Separate returns to be filed for reporting Compensation Cess.  All the provisions of CGST Act and IGST Act shall apply mutatis mutandis to GST Compensation Act.  Cess shall be levied at the rate to be notified, on the transaction value of supply of goods and services.  Cess shall be levied at each stage of supply with availability of credit.  Cess shall not be levied on the supplies made by the dealers opting for composition scheme.  Cess can be utilised against payment of such cess only.

12

Compliance chart with limitation periods under GST S.N.

Event/Circumstances

Prescribed form

Due date/Limitation period

A

Registration

1

Filing of information by the existing persons (registered under the repealing Law) - Sec 166

GST REG-20

6 months (or the extended period) from the appointed day

2

Mandatory application for registration by the person who is liable to pay tax - Sec 23(1)

GST REG-01

30 days from the date on which person becomes liable for registration as per Schedule V

3

Validity of certificate of registration issued to a casual taxable person or a non-resident taxable person - Sec 24(1)

-

Period specified in application for registration or 90 days from effective date of registration, whichever is earlier (extendable by further 90 days)

4

Application for Registration by non-resident & casual taxable person – Proviso to sec 23(1), Rule 8(1) of Registration Rules

GST REG-10

5 days prior to commencement of business

5

Application for extension of period of registration by the casual taxable person/nonresident - Proviso to sec 24(1), Rule 16(1) of Registration Rules

GST REG-25

Before the end of the validity of registration

B

Amendment in the registration

1

Information to the proper officer of any changes in the information furnished at the time of registration, or

GST REG-11

15 days from the date of change

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Handbook of GST in India – Concepts & Procedures, 2e S.N.

Event/Circumstances

Prescribed form

Due date/Limitation period

subsequently - Sec 25(1)

14

2

Commencement of business by taxpayer obtained voluntary registration, to avoid cancellation - Sec 26(2)

-

3

Revocation application against cancellation of registration - Sec 27(1)

GST REG-17

30 days from the date of service of cancellation order

C

Payment of tax

1

Payment of tax by normal taxpayers - Sec34(7); Rule 3(3) of Return Rules

GST PMT-4

20 days from end of the month

2

Payment of tax by compounding taxpayers - Sec 34(7); Rule 4(2) of Return Rules

GST PMT-4

18 days from end of quarter

D

GST returns by the suppliers

1

Tax Liability Ledger of tax payer - Sec 44

Form GST PMT1

Continuous

2

ITC Ledger of tax payer - Sec 44

GST PMT-2

Continuous

3

Cash Ledger of tax payer - Sec 44

Form GST PMT3

Continuous

4

First Return – Sec 35

GSTR-1/GSTR2/GSTR-3 or GSTR-4

Due dates as applicable to normal taxable person

5

Outward supplies (other than compounding taxpayer, nonresident taxpayer, e-commerce operator, ISD and person deducting TDS) - Sec 32(1)

GSTR-1

10th day of the next month

6

Inward supplies (other than a compounding taxpayer, nonresident taxpayer, e-commerce operator, ISD and person deducting TDS) - Sec 33(2)

GSTR-2

15th day of the next month

7

Monthly

GSTR-3

20th day of the next month

return

(other

than

6 months of registration

Compliance chart with limitation periods under GST S.N.

Event/Circumstances

Prescribed form

Due date/Limitation period

compounding taxpayer nonresident taxpayer, e-commerce operator, ISD and person deducting TDS) - Sec 34(1) 8

Quarterly return by compounding taxpayer - Sec 34(2)

GSTR-4

18th day of the month next to quarter

9

Periodic return by non-resident taxpayer - Sec 34(5)

GSTR-5

20 days after the end of a tax period or 7 days from expiry date of registration, whichever is earlier

10

Return for input service distributor (ISD) - Sec 34(4)

GSTR-6

13th day of the next month

11

Annual Return (other than ISD, person deducting TDS, ecommerce operator, casual/nonresident tax payer) - Sec 39

GSTR-9

31st December of next year

12

Final Return by the cancelled dealer - Sec 40

GSTR-10

3 months of the date of cancellation or date of cancellation order, whichever is later

13

Details of inward supplies to be furnished by a person having Unique Identity No. (UIN) - Rule 23 of Return Rules

GSTR-11

28th of the next month (as per footnote of GSTR-11)

14

Rectification of details of outward/inward Supply - Sec 32(3), 33(5)

-

–

–

15

Rectification of mistake in the return - Sec 34(9)

-

–

–

During the tax period in which such omission or incorrect particulars are noticed Maximum time: - Date of filing of return for the month of September following the end of the year, or filing of relevant annual return, whichever is earlier During the tax period in which such omission or incorrect particulars are noticed Maximum time: - Due date for filing of return

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Handbook of GST in India – Concepts & Procedures, 2e S.N.

Event/Circumstances

Prescribed form

Due date/Limitation period for the month of September or second quarter, as the case may be, following the end of the year, or the actual date of filing of relevant annual return, whichever is earlier

16

E

Tax deduction at source (TDS)

1

Payment of tax deducted at source - Sec 46(2)

GST PMT-4

10 days from end of the month

2

Return for tax deducted at source - Sec 34(3)

GSTR-7

10 days from end of the month

3

Issue of TDS certificate - Sec 46(4)

GSTR-7A

5 days of depositing TDS with Govt.

F

E-commerce/Tax collection at source (TCS)

1

Deposit of TCS - Sec 56(2)

2

GST PMT-4

10 days from end of the month in which such collection is made

Furnishing of monthly statement of outward supplies of goods/services, etc. by ecommerce operator - Sec 56(3)

GSTR-8

10 days from the end of the month in which such collection is made

3

Mismatch between the information of supplier and ecommerce operator – Rectification by the supplier Sec 56(7)

-

Within the same month or succeeding month in which communication is made

4

Time limit to reply show cause notice issued by the proper officer upon the e-commerce operator - Sec 56(1)

-

15 working days from the date of service of such notice

G

Input tax credit

1

Maximum time limit of taking input tax credit - Sec 16(4)

-

Date of filing of return for the month of September following the end of the year, or filing of relevant annual return,

Compliance chart with limitation periods under GST S.N.

Event/Circumstances

Prescribed form

Due date/Limitation period whichever is earlier

2

Time limit for payment of amount towards the value of supply of services along with tax payable thereon to the supplier of services - Proviso to Sec 16 (2)

-

3 months from the date of issue of invoice by the supplier

3

Claiming of input tax credit on stock held on the date of registration - Age limit of the stock - Sec 18(5)

-

One year from the date of issue of tax invoice relating to such supply

4

Maximum time limit for issuance of credit note - Sec 31(2)

-

30th September of the following year to which invoice pertains or date of filing of annual return, whichever is earlier

5

Maximum time limit for issuance of debit note - Sec 31(4) read with Explanation to sec 32 (1) & 32 (3)

-

Date of filing of return for the month of September following the end of the year, or filing of relevant annual return, which ever is earlier

6

Removal of mismatch in the input tax and output tax in the returns - Sec 37(5), 38(5)

-

Within the same month in which discrepancy is communicated or in the succeeding month

7

Time limit for receiving back of inputs by the principal from the job-worker to avoid reversal of input tax credit - Sec 20(3)

-

1 year from the date of dispatch

8

Time limit for receiving back of capital goods by the principal from the job-worker to avoid reversal of input tax credit - Sec 20(6)

-

3 years from the date of dispatch

H

Refund

1

Filing of the application of refund - Sec 48(1)

GST RFD-1

2

Disposal of refund application (if the proper officer is satisfied) Sec 48(7)

-

2 years from the relevant date 60 days from the date of receipt of application

17

Handbook of GST in India – Concepts & Procedures, 2e S.N.

18

Event/Circumstances

Prescribed form

Due date/Limitation period

I

Invoices, accounts and records

1

Issue of invoice in case of taxable supply of goods - Sec 28(1)

-

Before or at the time of (a) removal of goods for supply to the recipient, where the supply involves movement of goods, or (b) delivery of goods or making available thereof to the recipient, in any other case.

2

Issue of invoice in case of taxable supply of services - Sec 28(2), Rule 1(2) of Invoice Rules

-

Within 30 days from the date of supply of service

3

Issue of invoice in case of continuous supply of goods - Sec 28(4)

-

Where successive statements of accounts or successive payments are involved  before or at the time each such statement is issued or each such payment is received.

4

Issue of invoice in case of continuous supply of services – Sec 28(5), Rule 1(2) of Invoice Rules

-

Within 30 days from the date when each event specified in the contractor as specified under sec 28(5), which requires the recipient to make any payment to the supplier of services, is completed.

5

Issue of a receipt voucher or any other document evidencing receipt of advance payment – Sec 28(3)(c)

-

On receipt of advance payment

6

Issuing an invoice in respect of goods or services received by person liable for reverse charge under sec 8(3) from a person who is not registered under the Act – Sec 28(3)(d)

-

On the date of receipt of goods or services

7

New Registration: Issuing a revised invoice against the invoice already issued during the period starting from the effective date of registration till the date of issuance of certificate of registration – Sec 28(3)(a)

-

Within one month from the date of issuance of certificate of registration.

Compliance chart with limitation periods under GST S.N.

Event/Circumstances

Prescribed form

Due date/Limitation period

8

Issue of invoice where goods, being sent or taken on approval or sale or return or similar terms, are removed before it is known whether a supply will take place – Sec 28(8)

-

Before or at the time when it becomes known that the supply has taken place or 6 months from the date of removal, whichever is earlier

9

Issue of invoice in case of taxable supply of services by a banking company or a financial institution including a NBFC Rule 1(2) of Invoice Rules

-

Within 45 days from the date of supply of service

10

Time period related to retention of books of accounts - Sec 54

-

60 months from the due date of filing of annual return for the year pertaining to such accounts and records However, where an appeal or revision etc. is preferred: One year after final disposal of such appeal, revision, etc., or the period specified above, whichever is later.

J

Audits

1

Audit by a chartered accountant/ cost accountant in case turnover exceeds the INR 1 crore - Sec 53(4)

-

31st day of December following the end of year

2

Completion of audit by the tax authorities under Sec 63– Sec63(4)

-

3 months (extendable by a period not exceeding 6 months)

3

Special audit by the chartered accountants or the cost accountants - Submission of report - Sec 64(2)

-

90 days (extendable by further 90 days)

K

Assessment

1

Response to Notice by Proper Officer for Scrutiny of Returns – Sec 59(4)

-

30 days

2

Period of show cause notice to non-return filers - Sec 41

-

15 days

19

Handbook of GST in India – Concepts & Procedures, 2e S.N.

Prescribed form

Due date/Limitation period

3

Time limit for furnishing of valid return for withdrawal of assessment of non-return filers Sec 60(2)

-

30 days of the service of the assessment order

4

Application against summary assessment - Sec 62(2)

-

30 days from the date of receipt of order

5

Passing of final assessment order where provisional assessment has been made - Sec 58(3)

-

6 months from the date of communication of order (extendable by a period not exceeding 6 months)

6

Assessment of persons - Sec 61

-

5 years from the due date of filing of the annual return for the year to which the tax not paid relates

L

Tax short paid or erroneously refunded

1

Determination of tax where no fraud, willful misstatement or suppression of facts involved Limitation period - Sec 66(8)

-

3 years from the due date or the actual date, whichever is earlier, for filing of annual return for the year to which such short paid tax relates

2

Time limit for payment tax and interest to avoid penalty, as stated in the preceding row - Sec 66(6)

-

30 days

3

Determination of tax where fraud, willful misstatement or suppression of facts involved Sec 67(8)

-

5 years from the due date or the actual date, whichever is earlier, for filing of annual return for the year to which such short paid tax relates

4

Time limit for payment of tax, interest and 50% penalty to avoid other proceeding in respect of tax default, as stated in the preceding row - Sec 67(9)

-

30 days

-

3 months from the date of communication of the decision or order (Condonation - 1 month)

M 1

20

Event/Circumstances

unregistered

Appeals Appeals to the First Appellate Authority by the person- Sec 98(1)

Compliance chart with limitation periods under GST S.N.

Event/Circumstances

Prescribed form

Due date/Limitation period

2

Appeals to the First Appellate Authority by the GST officer as per direction from the Commissioner - Sec 98(1)

-

6 months from the date of communication of the decision or order (Condonation - 1 month)

3

Appeals to the Appellate Tribunal by the person - Sec 101(1)

-

3 months from the date of communication of the decision or order

4

Appeals to the Appellate Tribunal by the GST Officer as per direction from Committee Sec 101(4)

-

6 months from the date of communication of the decision or order

5

Disposal of appeal by the Appellate Tribunal, wherever possible - Sec 102(4)

-

One year from the date of filing of appeal

6

Submission of a memorandum of cross-objections before the Appellate Tribunal by the defendant - Sec 101(6)

-

45 days of the receipt of the notice

7

Appeal to the High Court - Sec 106(3)

-

180 days from the date of receipt of order

8

Appeal against the order of Advance Ruling Authority before the Appellate Authority - Sec 118(2)

-

30 days from the date of communication of order (extendable by 30 days)

9

Disposal of appeal by the Appellate Authority (against the order of Advance Ruling Authority) - Limitation period Sec 119(2)

-

90 days from the date of filing of appeal

N

Others

1

Rectification of mistake or errors apparent from record in a decision or order or summons or notice or certificate or any other document by the Authorities Limitation period - Sec 151

-

3 months from the date of issue of such order, etc.(Maximum 6 months)

2

Intimation of retirement of partner by the partner or the firm - Sec 132

-

One month from the date of retirement

21

Handbook of GST in India – Concepts & Procedures, 2e S.N.

Event/Circumstances

Prescribed form

Due date/Limitation period

3

Intimation to the Commissioner by the liquidator for his appointment - Sec 130(1)

-

30 days from the date of his appointment

4

Rectification of mistake in the information return under Sec 139(2)

-

30 days from the date of intimation by the prescribed authority

5

Filing of information return in pursuance to notice to non-return filers under Sec 139(3)

-

90 days from the date of service of notice

Note: Condonation period, extensions and extended periods have, generally, not been stated in the above compilation.

22

Getting ready for smooth transition to GST – Way forward Awareness and knowledge

•

•

• •

Knowledge is the essence for smooth transition. Without in-depth knowledge of this biggest transformation in the indirect tax structure in India since independence, it would be difficult to sail smoothly into the new structure.

Once the appointed day is notified, the entire regime would be new: from 12.00 midnight itself. Any invoice issued on 12.01 AM on that day would be subject to GST instead of VAT/CST/Excise Duty/Service Tax. Therefore, unless we and our systems and software are ready for this change, everything would be messed up in the morning of the appointed day.

We, as professionals, must remember that we are also service-providers; therefore, our own systems must also be equipped for the change.

Training: Comprehensive training would be required for the staff of the taxpayers’ community, both at senior level and at junior level. Further, the scope of such training should also be extended to the marketing personnel, besides the accountants and legal department.

Registration Existing registration - transition (a) On the appointed day, every person registered under any of the earlier laws shall be issued a certificate of registration on provisional basis, which shall be valid for 6 months (unless extended). (b) Such person shall furnish prescribed information within the prescribed time. (c) Provisional RC might be cancelled on non-furnishing of information. If the said registration is cancelled, provisional RC shall be deemed to have not been issued. Therefore, the taxpayer needs to be ready with the information and file it before the limitation period.

23

Handbook of GST in India – Concepts & Procedures, 2e

Circumstances when fresh registration is required even though the taxpayer has already been registered under the earlier law •

•

Multiple registrations for service provider: Presently, the service providers, generally, have taken centralized number for PAN-India basis. However, under the GST, they would require separate GSTIN in all those states where they have their place of business and are supplying the services.

To illustrate, a bank, having branches in 20 states, has one service tax registration today; but in the GST regime, it would require 20 registrations.

Needless to mention that separate SGST, CGST and IGST registrations would be there in every state.

Input Service Distributor (ISD): As per Model GST Law, ISD needs to apply for new registration since the existing registration will be discontinued.

New registration for e-commerce operator E-commerce operator would require registration for providing the required information and deducting tax collection at source (TCS).

Tax credit on the closing stock as on the appointed day • •

The dealer would have claimed input tax credit at the time of purchase of inputs; therefore, no fresh tax credit on such closing stock would be allowed to the taxpayer, except as discussed in the next para.

Where the taxpayer was not registered under the earlier law as he was not liable to get registration or by the exempt dealer or by the first/second stage dealer or by the works contractor or where he was paying tax under the composition scheme under the earlier law, he may claim tax credit of the stock held on the appointed day, provided (a) Amount of credit pertains to the period up to the appointed day and could not be claimed for the reason that he was not liable for registration or he was paying tax under the composition scheme; (b) Taxes should pertain to • inputs held in stock; and • inputs contained in semi-finished or finished goods held in stock, on the day preceding the date of such appointed day. (c) Credit must otherwise be admissible under the earlier law as well as the GST law.

24

Getting ready for smooth transition to GST – Way forward

(d) He has invoice/other evidence in his possession for purchase not earlier than 12 months from the appointed day.

Where a registered taxable person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then such person shall be allowed to take credit at the rate and in the manner prescribed (e) The benefit of such credit is passed to the recipient by way of reduced prices.

Tax credit balance available in the returns Where the taxable person has carried forward amount of eligible tax credit in a return furnished under the earlier law in respect of period ending immediately preceding the appointed day, he could claim such credit in the GST provided the credit should be admissible under the GST law.

Tax credit balance not available in the returns •

• •

It might happen in the following cases: (i) Tax credit in respect of capital goods; (ii) Taxpayer is paying tax under the composition scheme in the earlier law; whereas, under the normal scheme under the GST; (iii) Unregistered dealer.

The taxpayer could claim the unutilized/unavailed tax credit provided it should be admissible under the earlier law as well as new law.

If credit relates to the category (ii)/(iii) above, the taxpayer should have invoice/other evidence in his possession for purchase relating to inputs held in stock and inputs contained in semi-finished or finished goods held in stock, not earlier than 12 months from the appointed day.

Existing exemptions Industries availing area based exemption or product based exemption must start dialogue with the respective government(s) immediately and ensure their benefits are incorporated into the new enactment.

25

Handbook of GST in India – Concepts & Procedures, 2e

Existing long term contracts • •

•

• • •

All Acts envisage levy of taxes as per the provisions prevailing at the time of event.

The contracts, which have been entered before the appointed day and to be partly/wholly executed after that day, might relate to (i) Works contract activities, (ii) Leasing activities etc.

In case of “exclusive of tax” contracts, the contractor must ascertain that he should be in a position (contractually) to transfer the additional burden of tax, if any, upon the contractee. If there is no such clause in the contract, suitable amendments must be carried out before the appointed day.

All the existing contracts, which have been executed “inclusive of all taxes”, must be renegotiated to safeguard their interest.

Where the contractors (with turnover of more than INR 50 lakhs) are paying tax under the composition scheme, they must evaluate the impact since there might not be such scheme under the GST. It should also be ensured that invoices for the work done are raised before the appointed day. For this purpose, it is necessary, that provisions in respect of “time of supply” are properly understood.

Inventory held in stock or books of accounts •

•

26

The taxpayer must ensure that its physical stock vis-à-vis the stock in books of accounts matches.

Let us take a situation. Suppose, ABC has physical stock of INR 10 lakhs; whereas the stock as per the books of accounts is INR 20 lakhs. The variation in the stock is merely a book entry; and is for the purpose of availing higher bank credit, or ABC might have sold the inventory without being accounted for in the books of accounts. Now, the GST regime commences. The taxpayers are required to give the details of stock under the GST Law. If ABC declares the stock as INR 20 lacs, he would have to pay GST on such stock (at the time of showing supply or when detected by the enforcement team) at the prevailing rate, which would certainly be higher than the present rate. Therefore, ABC must try to correct its books of accounts before the appointed day to avoid higher tax liability.

Unregistered dealers or dealers paying tax under the composition scheme: If such dealers start paying GST under the normal scheme, they could claim input tax credit on the inputs and inputs contained in semi-finished goods held in stock on the appointed day. However, ITC claim is not available for such stock if the same was purchased before 12 months from the appointed day.

Getting ready for smooth transition to GST – Way forward

•

Where goods have been removed/dispatched for the job work before the appointed day, then to avoid the tax liability upon the principal as well as the job-worker, it must be ensured that these goods are returned to the place of business within 6 months from the appointed day.

Taxpayers planning to sell their fixed assets At present, whether sale of fixed is subject to VAT or not, is a matter of litigation.

Some High Courts are of the view that unless the sale is incidental to the main business of the dealer, it would not be subject to VAT. The Delhi High Court in the case of Anand Decor 1 held that, if the dealer has not claimed input tax credit at the time of purchase due to restriction under the Act or otherwise, then, to avoid double taxation, sale of such goods would not be subject to VAT. However, there are no such provisions for exemption under the GST.

Therefore, where any dealer is in the process of selling capital assets due to various reasons, such as, assets become obsolete, discontinuance of business, or otherwise, he must speed up and dispose of his assets before the appointed day.

Importation of services by a non-taxpayer Definition of the term “supply” under sec 3 of the Revised Model GST Law includes importation of service for a consideration, whether or not in the course or furtherance of business. This implies that import of services even for personal consumption would qualify as ‘supply’; and therefore, such importer of service would be liable to tax, subject to the threshold limit.

If any person wants to import any service, such as, consulting engineer, architect, coaching, etc then, if possible, he should avail the service before the appointed day to avoid GST, which would be almost 18%-20% of the value of service.

Additional restrictions for claiming input tax credit Under the GST, input tax credit would be available to the buyer only if the counter-party supplier has paid tax to the appropriate government and has filed its valid returns. It means that if a supplier does not deposit his GST liability, all of his counterparty recipients would not receive the credits of ITC, even if they have paid the entire consideration to the supplier. These provisions require chasing 1

Anand Decors v CTT (2014) 79 VST 119 (Del) (SLP pending before the Supreme Court).

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Handbook of GST in India – Concepts & Procedures, 2e

by the recipients of the suppliers to deposit tax liability on or before the due date.

Therefore, efforts should be started right now to identify such dealers who are generally tax defaulters. Taxpayers might have to change their business model by keeping security deposit or indemnity bond from such suppliers till the date these suppliers file their valid return.

Returns • • •

For B2B transaction, the taxpayer shall give the line-wise and State-wise details of supplies. Moreover, credit and debit note would be linked with the original invoice against which the same is being issued.

Further, returns would be filed on monthly basis. Number of returns during the year would also multiply.

Therefore, the taxpayer must have adequate staff to comply these additional requirements. Unless the accounting is done in competent software by the capable accountant, timely and properly, required reports could not be generated.

Invoices and records •

•

•

28

Format of invoice has been prescribed in the Draft GST Invoice Formats, which has number of additional columns as compared to the columns presently applicable. After the appointed day, the taxpayer will use that format only.

Therefore, he must have suitable software before that day, which could facilitate the generation of invoice in the prescribed format.

Invoice must state HSN (Harmonised System of Nomenclature) code/SAC (Service Accounting Code): HSN/ SAC shall be used for classifying the goods under the GST regime. (i) If gross turnover in previous year between INR 1.5 Cr. and INR 5 Cr: Minimum 2 digit HSN/SAC, Mandatory from 2nd year of GST implementation; (ii) If gross turnover in previous year> INR 5 Cr: Minimum 4 digit HSN/SAC mandatory; (iii) Exports and Imports: 8 digit HSN/SAC mandatory.

Advance receipts even for goods are taxable in GST. Under the State level VAT, tax is levied at the time of issuance of invoice, which is generally issued at the time of transfer of property in goods (i.e., sale of goods); whereas under the GST, it would be levied at the time of receipt of advance even if goods have

Getting ready for smooth transition to GST – Way forward

•

not been delivered or even if there has not been any sale of goods. Therefore, the accounting software must be in a position to quantify such transactions.

GST would allot GSTIN state-wise to an entity. Taxpayers are required to maintain their accounts GSTIN-wise. These accounts should be able to provide GSTIN-wise report and statement of turnover and expenses. State-wise information would be required while submitting annual return in each state separately. Moreover, these accounts would be subject to annual audit where the turnover of the taxpayer exceeds the prescribed limit.

Additional working capital requirements The entities must evaluate their working capital requirements in the post-GST regime, so that they may approach to their banks in advance for additional credit facility. Additional working capital might be required due to increase in investment in taxes for the following reasons: (i) Abolition of Statutory Form C, I, J specified under the Central Sales Tax Act: Presently, taxpayer can purchase goods from other states at a concessional rate of 2% or at nil rate, as the case may be, on the strength of Central Forms. However, under the GST, these goods would be purchased only after payment of full GST. Of course, the supplier could get credit of such tax; but it would increase the working capital requirement of the buyer, during the holding period of stock, in respect of taxes paid. (ii) Presently, stock transfers from one state to another take place free of tax against Form F. However, under the GST, stock transfers by a dealer from one State to its branch/agent located in other State would be treated as inter-state supply and be subject to IGST. (iii) With the abolition of Form H, sale and purchase between the penultimate exporter and the actual exporter would take place only after payment of full GST. The amount of tax so paid will be claimed as refund by the exporter on a future date. (iv) Garment exporters are purchasing fabrics and textiles without payment of tax; thus, their investment in taxes is confined only to the extent of tax paid on accessories and packing materials. Under the GST, since fabrics would be taxable, their investment in taxes would increase considerably by the amount of tax paid on these goods.

Determination of cost or price structure in the GST All invoices received and raised after the appointed day would be subject to GST. Therefore, it is essential to determine the impact on the cost, right now, without

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Handbook of GST in India – Concepts & Procedures, 2e

waiting for the final day. The impact would depend, inter-alia, the following factors: (i) Existing rate of VAT and excise duty v/s Tax rates under GST. (ii) CENVAT/Input tax credit presently available v/s Availability of input GST credit. (iii) Non-creditable list in the GST. (iv) Impact on input suppliers and output receivers of the concerned entity under the GST. (v) Taxes/activities to be kept outside the scope of GST, such as, stamp duty, alcohol and petroleum products. (vi) Change in the manner of determination of supply and its valuation under the GST. Many transactions, even without consideration, would be deemed as supply and be subject to GST. (vii) Cost of additional human resources and professionals for compliance of GST provisions. (viii) Capacity of the supplier to pass on the additional GST burden to its customers. (ix) Denial of input credit to an entity due to non-deposit of taxes by its counterparty suppliers.

Updating of software Dealers and service providers need to upgrade their accounting and tax software. In the modern world, when all the large scale companies have sophisticated ERP software, like SAP etc, to upgrade and customize the same will be a big challenge to the software companies. Huge cost to begin with: continuous training of people at each level and continuous updation of all operating systems is essential.

Human resources Taxpayers might require additional human resources which are well qualified and trained to meet this challenge, due to (i) Increase in number of registrations, particularly, the service providers; (ii) Increase in number of returns to be filed in a given tax period in each State; (iii) Increase in number of details and information required to be given in each return; (iv) Maintenance of additional records and documents.

30

Getting ready for smooth transition to GST – Way forward

Marketing model Taxpayers would have to decide whether they would like to reorganize their marketing model. As seamless credit of input tax is available across the states, the industries must revisit their marketing model, number of warehouses required across India; and the number of marketing teams.

Author’s Note Readers are advised to refer the following chapters in this book, which discuss the transition provisions and impact of GST on various sectors in length: (i) Transition Provisions (ii) Industry – Impact, Expectations and Transition.

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Handbook of GST in India – Concepts & Procedures, 2e

32

Chapter 1

Existing indirect tax structure in India 1.1

Framework of Constitution of India in respect of taxation

As per Art. 246(1) of Constitution of India, the Parliament has exclusive powers to make laws with respect to any matters enumerated in List I of the Seventh schedule to the Constitution of India (called Union List).

As per Art. 246(3), the state governments have exclusive powers to make laws with respect to the matter enumerated in List II (called State List).

Schedule VII of the Constitution consists following three lists: • List I (Union List) contains entries over which the central government has a power to legislate, • List II (State List) contains entries over which the state government has a power to legislate, and • List III (Concurrent List) contains entries over which both the central government and the state government has a power.

Broad indirect taxes/duties in Schedule VII of the Constitution Union List (List I)

State List (List II)

Entry 83 - Duties of Customs

Entry 51 - Excise duty on Alcoholic Liquors, Opium & Narcotics

Entry 84 - Duties of Excise

Entry 52 - Taxes on entry of goods

Entry 92A - Taxes on sale or purchase of goods between two States (CST)

Entry 53 - Taxes on the consumption or sale of electricity

Entry 92B - Taxes on the consignments of goods, where such consignment takes place in the course of inter-state trade

Entry 54 - Taxes on sale and purchase of goods where such sale/purchase takes within the State (VAT), subject to Entry 92A of List I

Entry 92C/97 - Taxes on services

Entry 55 - Taxes on advertisements other than in newspaper, radio and television 33

Handbook of GST in India – Concepts & Procedures, 2e

Chapter 1

Union List (List I)

State List (List II)

Entry 91 - Stamp duty in respect of bill of exchange, cheques, promissory notes, bills of lading, letter of credit, insurance policies, transfer of shares, debentures, proxies & receipts

Entry 62 - Taxes on luxuries, entertainments, amusements, betting and gambling

1.2

Entry 63 - Stamp duty in respect of document other than those specified in List I

Main indirect taxes or duties in India at present

Indirect taxes/duties Relevant entry of Sch VII to the Constitution

Taxable event

Maiden rate of tax/duty

Customs duty

83 of List I

Import & Export

Varies

Excise duty

84 of List I

Manufacture

12.5%

Service tax

97 (Residuary) of List I

Provision of service 15%

Central sales tax

92A of List I

Sale

Equal to State VAT Rate

State VAT

54 of List II

Sale

5%, 12.5% & 20%

State excise duty (On 51 of List II liquor)

Manufacture/Import Varies in state

India currently has a dual system of taxation of goods and services: by the Union as well as the state. Taxes on goods are described as “VAT” at both central and state level. It has adopted value added tax principle with input tax credit mechanism for taxation of goods and services, respectively, with limited cross-levy set-off.

Until the introduction of MODVAT (now, CENVAT) Scheme in 1986 under the central excise duty, duty was levied as origin based single point taxation system on manufacture of goods with some exceptions where set off scheme was used to reduce cascading effect of taxes.

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Chapter 1

Existing indirect tax structure in India

Following are other features of present indirect taxation in India: • Excise duty is levied only at manufacturing level and does not go up to the retail level.

• Before the implementation of State level VAT, varieties of schemes were used, like origin based single point system (first point tax), multi point system with set-off, last point (retail level) system, and so on. This was, again, not standard even within a state. States adopted different systems for different commodities too.

• Cascading effect at that time was reduced to a great extent with the use of declaration forms, though, that by itself, was a complex system. With the introduction of state VAT, there is combination of origin based (central sales tax) and destination based multi-point system of taxation.

• Similarly, there was no Union level tax on services until the introduction of Service Tax in 1994. Selective levy on specified services by the states is continuing, e.g., entertainment tax, luxury tax, etc.

• Set-off of input tax credit at the State level VAT is only on the goods and no cross set-off is allowed between the goods and the services. Further, no set-off of the central sales tax, whatsoever, is available. It is important to mention that the central sales tax, even though legislated by the union, is levied, collected and retained by the state where it is collected.

At the Union level, it is in respect of goods (excise duty) as well as services (service tax) through input tax credit mechanism (CENVAT).

1.3

Customs duty

Indian Customs have been assigned a number of tasks, more important of which are: (i) Collection of customs duties on imports and exports as per basic Customs Laws (the Customs Act, 1962 and the Customs Tariff Act, 1975); (ii) Enforcement of the various provisions of the Customs Act governing imports and exports of cargo, baggage, postal articles and arrival & departure of vessels, air crafts, etc; (iii) Discharge of various agency functions and enforcing various prohibitions and restrictions on imports and exports under Customs Act and other allied enactments; (iv) Prevention of smuggling including interdiction of narcotics/drug trafficking; and (v) International passenger processing.

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Handbook of GST in India – Concepts & Procedures, 2e

Chapter 1

Salient features of customs duties in India are as under: • The Constitutional provisions have given to the Union, the right to legislate and collect duties on imports and exports as per Entry 83 of List I to Sch VII of the Constitution. The Customs Act, 1962 is the basic Statute, effective from 1 February 1963, empowering duties to be levied on goods imported into or exported from India.

• The categories of goods and the rates of duties leviable have been specified in the Schedules to the Customs Tariff Act, 1975. The First schedule to the said Act specifies various categories of import commodities in a systematic and well considered manner, in accordance with the international scheme of classification of internationally traded goods – termed ‘Harmonized System of Commodity Classification’.

Different rates of duties have been prescribed by the legislature on different commodities/group of commodities mentioned in the First Schedule.

• The duties are levied both on specific and ad valorem basis (i.e. duties with reference to value); while there are few cases where at times specific-cum-ad valorem duties are also collected on imported commodities. Second schedule to the Customs Tariff Act, 1975 incorporates commodities subject to exports duties and rates thereof.

• Where ad valorem duties are collected, which are the predominant mode of levy, the value of the goods for customs duty purposes is determined as per provisions laid down under sec 14 of the Customs Act and the Customs Valuation (Determination of Prices of Imports Goods) Rules, 2007 issued thereunder.

• Customs duties on import are primarily of three types: (a) Basic Customs Duty (levied u/s 12 of the Customs Act); (b) Additional Customs Duty/Countervailing Duty (CVD) under sections 3(1) and 3(3) of the Customs Tariff Act, in lieu of excise duty; (c) Special Additional Duty of Customs (SAD) under sec 3(5) of the Customs Tariff Act to counter-balance the sales tax, value added tax, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India to bring manufactured products in India at par with the imported goods.

1.4

Excise duty

Central excise duty is an indirect tax levied on goods manufactured in India. The duty is administered by the Central Government under the authority of Entry 84 of the Union List (List I) of Sch VII read with Art. 246 of the Constitution of India.

Following are main features of central excise duty in India.

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Chapter 1

• • •

• •

Existing indirect tax structure in India

The central excise duty is levied in terms of the Central Excise Act, 1944 and the rates of duty, ad valorem or specific, are prescribed under the Sch I and II of the Central Excise Tariff Act, 1985.

The taxable event under the Central Excise Law is ‘manufacture’ and the liability of central excise duty arises as soon as the goods are manufactured.

In 1986, modified value added tax (MODVAT) was introduced as the first step towards reforming Union excise duty. This provided set-off for about a small number of articles. In 1987, MODVAT was extended to some additional commodities. With the recommendations of the report of Tax Reforms Committee (TRC) (1991-93), the MODVAT was further extended to a large number of commodities. Gradually, the procedures of MODVAT have also been overhauled, resulting in a full system of Central VAT (CENVAT).

Excise duty allows instant credit for all the taxes paid on inputs as well as of countervailing duty (CVD).

New Central Excise Rules, 2001 replaced the Central Excise Rules, 1944 with effect from 1 July, 2001. Other rules were also notified namely, CENVAT Credit Rules, 2001, Central Excise Appeal Rules, 2001, etc.

With the introduction of the new rules, several changes were effected in the procedures. The CENVAT Credit Rules, 2001 were later replaced by CENVAT Credit Rules, 2004, having the following broad features: o Elimination of cascading effect through tax credit mechanism; o Integration of excise duty and service tax, and set-off of one against another; o However, it is not an integration of excise duty with sales tax/value added tax on sale of goods.

1.5

Service tax

Service tax was first imposed in India in the year 1994 with three services through Chapter V of the Finance Act, 1994. More and more services were brought into the tax-net. Since, there is no separate legislation for imposition of service tax in India, it is governed and administered by the Finance Act, 1994.

The tax is administered by the Central Government under the authority of Residual Entry 97 of the Union List (List I) under Sch VII of the Constitution of India.

Salient features of service tax in India are as under: • Taxable event of the service tax is ‘provision of services’. However, tax is also levied on services to be provided, i.e., the advances received for provision of services.

• Up till 30 June 2012, service tax was levied on specified services by the Central Government, commonly known as positive regime. With effect 37

Handbook of GST in India – Concepts & Procedures, 2e

•

•

•

Chapter 1

from 01 July 2012, negative regime has been brought in, whereby all the services have been considered as taxable services, except services specifically excluded or exempted under the Act. The CENVAT Credit Rules, 2004 provides for availment of the credit of the service tax and central excise duties paid on the input services/inputs/capital goods used for providing output services. Such credit amount can be utilised by an assessee towards payment of service tax on their output services.

The CENVAT credit availed by a manufacturer on the input services can also be utilised for discharging his liability towards service tax on output services and/or central excise duties. Duties of excise and the countervailing customs duty (CVD) paid on the inputs & capital goods and the service tax paid on the ‘input’ services can be taken as credit.

However, cross levy set-off of service tax and sales tax/value added tax on sale of goods is not permissible.

1.6

State value added tax (VAT) or central sales tax (CST)

Broadly, for taxation purposes, sales can be divided into: (a) Sales within a state (known as ‘intra-state sales’ or ‘local sales’); (b) Sales from one state to another state within the domestic boundaries of India (known as ‘inter-state sales’ or ‘central sales’); and (c) Sales in the course of export from or import into India.

While the sales tax on the first head, i.e. local sales, is levied by the State Governments as per the provisions of their respective state sales tax laws (presently VAT laws), taxability of inter-state sale under the second head is within the purview of the Central Government.

Sales under the third head, i.e., in the course of export and import, though defined under the Central Sales Tax Act, are exempt from the sales tax/VAT. Art. 286 of the Constitution imposes restrictions on the states to tax on sale or purchase of goods in the course of the import of the goods into, or export of the goods out of, the territory of India.

Entry 54 in List II (State List) of the Seventh schedule read with Art. 246(3) of the Constitution of India empowers the states to impose “tax on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of the List I”.

Entry 92A in the Union List in the Seventh schedule to the Constitution of India confers powers upon the Union to legislate in respect of “taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of interstate trade or commerce”. Power to impose sales tax in the Union Territory vests with the Parliament under Art. 246(4) of the Constitution of India.

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Chapter 1

Existing indirect tax structure in India

As per Art. 269(3) of the Constitution, Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter-state trade or commerce. As per Art. 269(1) of the Constitution, tax on the sale or purchase of goods, where such sale or purchase takes place in the course of inter-state trade or commerce shall be levied and collected by the Government of India, but shall be assigned to the collecting states.

1.6.1 Value added tax (VAT) VAT, one of the biggest reforms in the history of indirect tax structure in India, was implemented by a majority of the states with effect from 1 April 2005, and this could be possible due to joint efforts of the central government and the state governments. The replacement of the state sales taxes by the VAT marked a significant step forward in the reform of domestic trade taxes in India.

Main features of value added tax are as under: • VAT is a tax on value addition. It is a multi-point tax, which is levied at every stage of sale. It is collected at the stage of sale (whether manufactured goods or traded goods), and contemplates rebating of tax paid on inputs and capital goods. Despite its name, VAT is intended as tax on consumption, and is destination based tax within the State.

• VAT replaced general sales tax structure, which was levied at the state level; however, the only difference is in the manner of levy. Powers of the states to levy tax on sales transactions, in the form of VAT, continue to be drawn from Entry 54 in List II of Sch VII of the Constitution of India. In VAT, every transaction of sale of goods in the course of business is taxed, thus providing revenue to the government on value addition at every stage.

On account of set-off being provided on preceding purchase, cascading effect on cost of goods is avoided. It is a self policing system, reducing the scope of tax evasion. VAT has reduced the scope for under-valuation and tax evasion, and has provided a broad tax base.

• Implementation of VAT in various states of India progressed as under: a

Haryana

April 1, 2003

b

18states

April 1, 2005

c

2states

May 1, 2005

d

Uttarakhand

October 1, 2005

e

Jharkhand

January 1, 2006

f

4states

April 1, 2006

g

Tamil Nadu

January 1, 2007

h

Uttar Pradesh

January 1, 2008

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Handbook of GST in India – Concepts & Procedures, 2e

Chapter 1

1.6.2 Enactment of the Central Sales Tax Act, 1956 (CST Act) In exercise of authority conferred by the Constitution (Sixth Amendment) Act, 1956, the Parliament enacted on 21 December 1956, the Central Sales Tax Act, 1956 (‘CST Act’, in short). Imposition of tax became effective from 1 July 1957.

Inter-State sale of goods is taxable under the CST Act. For this purpose, goods have been classified into two categories: (a) Declared goods, i.e., goods of special importance in inter-state trade or commerce, and (b) Other goods.

Rates of tax have been prescribed under sec 8 of the Act and differ from state to state and for a particular commodity, it generally depends upon the VAT rate prevailing in that state. Rate of tax on declared goods in any state cannot exceed 5% at present.

Central Sales Tax is non-VAT’able, and the effect of double taxation, to some extent, is avoided through Form C. A registered dealer can purchase goods from another registered dealer located in other State at a concessional rate of tax on the strength of Form C. The Central Government reduced the central sales tax rate for sales made to registered dealers on the strength of Form C from 4% to 3% with effect from 1 April 2007; which was further reduced to 2% w.e.f. 1 June 2008.

1.7 • • • • • • • • • • • • •

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Other important indirect taxes or duties

Betting and gambling tax; Entertainment tax; Entry tax and Octroi; Lottery tax; Luxury tax; Property tax; Research and development cess; Stamp duty; Tax on consumption or sale of electricity; Taxes on transportation of goods and services; Telecom license fees; Toll tax, passenger tax and road tax; Turnover tax.

Chapter 1

Existing indirect tax structure in India

1.8 (i)

Shortcomings of the present structure

Tax Cascading Tax cascading occurs under the centre as well as the state taxes. The most significant contributing factor to tax cascading is the partial coverage by central and state taxes. Mining, agriculture, wholesale and retail trade, and range of services remain outside the ambit of the Cenvat and the service tax levied by the centre. The exempt sectors are not allowed to claim any credit for the Cenvat or the service tax paid on their inputs.

Similarly, under the State VAT, no credits are allowed for the inputs to the exempted sectors, which include the entire service sector and sale of exempted goods. Another major contributing factor to tax cascading is the central sales tax (CST) on inter-state sales, collected by the origin-state, for which no credit is allowed by any state government.

(ii)

Complexity in determining the nature of transaction – Whether is it sale or service?

The distinctions between goods and services have become more complex.

Transfer of software, copyrights, patents and other intangible goods are always in dispute: whether these are sales of goods or provision of services?

Further, goods, services, and other types of supplies are being packaged as composite bundles and offered for sale to consumers under a variety of supply-chain arrangements. Under the current division of taxation powers in the Constitution, neither the Centre nor the States can apply the tax to such bundles in a seamless manner. Each government can tax only parts of the bundle, creating the possibility of gaps or overlaps in taxation.

(iii)

Lack of uniformity in provisions and tax rates Present VAT structure across the States lacks uniformity, which is not restricted only to the rates of tax, but also extends to procedures and, sometimes, to the definitions, computation and exemptions.

Theoretically, one might expect that the lower tax rates would be applied to basic necessities that are consumed largely by the poor. This is not the case under the State VAT. The lowest rate of 1% applies to precious metals and jewellery, and related products. The middle rate of 5% applies to selected basic necessities and also a range of industrial inputs and IT products.

Packaged water is been taxed @ 12.5% by most of the states. In fact, necessities fall into all three categories – exempted from tax, taxable at 5%, and taxable at the standard rate of 12.5%. Higher rate of 20% is applicable mainly to the petroleum products and liquor. Many states, such as, Haryana, U.P. etc have also started levying additional tax or surcharge over and above the floor rates of tax.

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Handbook of GST in India – Concepts & Procedures, 2e

(iv)

Chapter 1

Fixation of situs – Local sale v/s Central sale To decide whether a sale takes place in one state or another, i.e. to fix the situs of a sale transaction, is the major conflict since its taxability affects the revenue of the state. Though CST is a tax levied by the central government, it is collected and retained by the collecting state. Whether a transaction is a direct inter-state sale from state ‘A’ to the customer ‘PQR’ located in state ‘B’; or is a stock transfer from state ‘A’ to branch in state ‘B’ first, and then a local sale to the customer ‘PQR’ in the state ‘B’, will have a bearing on the revenue of the state ‘A’ or state ‘B’, as the case may be.

A significant number of litigations pertain to this issue. Ultimately, the Central Government made provisions under the Central Sales Tax Act and created a Central Appellate Authority to resolve such matters.

(v)

Interpretational issues Interpretation of various provisions and determining the category of the commodities is the major problem; and significant number of litigation surrounds this issue only. To decide whether an activity is a sale or a works contract, a sale or a service, is not free from doubt in many cases.

(vi)

Levy of excise duty on manufacturing point The excise duty is levied on goods manufactured or produced in India.

Limiting the tax to the point of manufacturing is a severe impediment to an efficient and neutral application of tax. Taxable event at manufacturing point itself forms a narrow base. For example, valuation as per excise valuation rules of a product, whose consumer price is INR 100/- is, say, INR 70/-. In such a case, excise duty as per the present provisions is payable only on INR 70/-, and not on INR 100/-.

(vii)

Narrow base of excise duty The starting base for the excise duty is narrow, and is being further eroded by a variety of area-specific, and conditional and unconditional exemptions.

(viii)

Complexities in administration Compounding the structural or design deficiencies of each of the taxes is the poor infrastructure for their administration. Taxpayer services, which are a lynchpin of a successful self-assessment system, are virtually non-existent or grossly inadequate under both central and state administrations. Many of the administrative processes are still manual, not benefiting from the efficiencies of automation. All this not only increases the costs of compliance, but also undermines revenue collection.

(ix)

Insufficient tax compliance Multiple tax administration machinery, compliance monitoring using manual practices, regular failure of IT support system, etc have led to

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Chapter 1

Existing indirect tax structure in India

blatant tax leakage/avoidance, missing transaction trail, under-reporting of invoice value, irregular availment of input credits by the purchaser without deposit of tax by the supplier. The above has put pressure on State’s resource availability for state development resulting in withholding of tax refunds by state administration to preserve state treasury, thereby impacting cash flow at the business level.

43