#TaxmannAnalysis! New GST Rate Structure Introduced for Brick Kilns Sector | Read Now for FREE!

Guidance Note on new GST rates structure introduced for Brick Kilns Sector

Drafted by: TAXMANN’s (Indirect Tax) Research and Advisory Team

Guidance Note on new GST rates structure introduced for Brick Kilns Sector Drafted by: TAXMANN’s (Indirect Tax) Research and Advisory Team

TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 2

3 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector

Contents 1. Introduction

6

2. GST Rate structure before April 01, 2022

7

3. GST Rate structure after April 01, 2022

8

4. FAQs on new tax structure notified for Brick Kilns Indus

9

TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 4

Take of TAXMANN’S Advisory and Research Support Services

The new tax structure for the Brick Kilns Industry would bring an extra burden on the manufacturer suppliers in terms of an increase in tax liability and compliance requirements. The increase in the GST rate would also impact the prices of the residential affordable projects that use bricks for the construction of flats.

The rate of 6% or 12% may be analyzed separately in respect of each transaction.

Whether to opt for the higher rate or not will depend on various factors such as the ability of the customer to avail of ITC, cost-benefit analysis of the value chain, etc.

Developers, etc. should analyze this and approach the suppliers accordingly.

POONAM HARJANI Leader, Indirect Tax, Advisory and Research Support Services

SUNIL KUMAR Manager, Indirect Tax, Advisory and Research Support Services (With inputs from Karishma Malhan, Assistant Manager, Indirect Tax, Advisory and Research Support Services)

5 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector

1.

Introduction The Government has notified a revised tax structure for the Brick Kilns sector effective from April 01, 2022. In this new tax structure, the Government has provided the GST rate of 12%1 (with ITC) or 6%2 (without ITC) for the below products (hereinafter referred to as ‘specified products’): Sl. No.

Tariff item, subheading, heading or Chapter

Description

1.

6815

Fly ash bricks or fly ash aggregate with 90 per cent. or more fly ash content; Fly ash blocks

2.

6901 00 10

Bricks of fossil meals or similar siliceous earths

3.

6904 10 00

Building bricks

4.

6905 10 00

Earthen or roofing tiles

The rate structure implemented by the Government is an outcome of the recommendations of the 45th GST Council meeting. With the introduction of the new rates, the persons engaged in the manufacturing and supply of the specified products would not3 be entitled to avail the composition scheme. In other words, they would not be entitled to the lower GST rate of 1% (without ITC). Further, the threshold limit for the persons engaged in the supply of specified goods has been reduced from Rs. 40 Lakhs to Rs. 20 Lakhs4.

In view of the above changes, one may have various questions relating to the new rates structure. This Guidance Note discusses and analyzes the impugned change and its impact, along with discussing various questions that may arise during the implementation of this amendment.

1 Notification No. 01/2022-Central Tax (Rate), Dated March 31, 2022 2 Notification No. 02/2022-Central Tax (Rate), Dated March 31, 2022 3 Notification No. 03/2022-Central Tax, Dated March 31, 2022 4 Notification No. 04/2022-Central Tax, Dated March 31, 2022 TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 6

2.

GST Rate structure before April 01, 2022 Prior to April 01, 2022, the suppliers of specified products (manufacturer or trader) could either opt for the composition scheme5 (1% GST without ITC) or the normal scheme (5% GST with ITC) in order to discharge their GST liability. The GST impact on different suppliers is summarized in the table below: Sl. No.

Taxpayer

GST Rate Implications

1.

Supplier having aggregate turnover up to Rs. 40 Lakhs

-

•

2.

Taxpayers opted for Composition Scheme

1%

•

Benefit of composition scheme was available where turnover was up to Rs. 1.5 Crore

•

No ITC was available to the supplier

•

GST paid by the supplier could not be claimed as ITC by the recipient7

•

Quarterly statement was required to be furnished with tax payment and one return on annual basis was required to be furnished

•

ITC was available

•

File monthly/ quarterly returns furnishing the details of outward supply, ITC, payment of tax, etc.

3.

Other taxpayers (Normal scheme)

5%

No registration was needed6 as turnover was less than the threshold limit of Rs. 40 lakhs

5 Under Section 10 of the CGST Act 6 Notification No. 10/2019-Central Tax, dated March 7, 2019 7 Section 17(5)(e) of the CGST Act, 2017 7 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector

3.

GST Rate structure after April 01, 2022 Under the new tax rates structure, the Government has notified a higher rate of GST i.e. 12% on the specified products, where the benefit of claiming ITC would be available to the supplier. Alternatively, the specified products can be supplied with the lower GST rate of 6% with a condition that the benefit of ITC would not be available in respect of goods or services used (exclusive or common) in supplying such goods.

The manufacturer suppliers of the specified products would no longer be able to avail the benefit of the composition scheme under Section 10 of the CGST Act. The threshold limit of registration for the suppliers has also been decreased from Rs. 40 lakhs to Rs. 20 lakhs. In other words, the supplier of specified products would be required to register under the GST law if their aggregate turnover in the financial year exceeds Rs. 20 lakhs.

The rate structure for the supply of specified products with effect from April 01, 2022, is summarized as under: Option

Particulars

1.

Payment of tax at a 12% higher rate

•

Payment of tax at a 6% lower rate

•

2.

GST Rate

Implications

•

• 3.

Composition 1% Scheme for traders of specified goods

• • • •

8

No restriction in respect of ITC

File monthly/ quarterly returns furnishing the details of outward supply, ITC, payment of tax, etc.

ITC would not be available in respect of the following: -

Goods or services used exclusively in supplying such goods; and

-

Common ITC to be reversed in accordance with Section 17(2) of the CGST Act

File monthly/ quarterly returns furnishing the details of outward supply, payment of tax, etc.

Benefit of composition scheme is available where turnover is up to Rs. 1.5 Crore No ITC was available to the supplier

GST paid by the supplier could not be claimed as ITC by the recipient8 Quarterly statement is required to be furnished with tax payment and one return on annual basis was required to be furnished

Section 17(5)(e) of the CGST Act, 2017 TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 8

4.

FAQs on new tax structure notified for Brick Kilns Indus Q 1.

I am a manufacturer of specified products presently registered under the normal scheme (i.e. paying GST at the rate of 5%) and opting to pay tax at 6% under the new scheme. Do I need to reverse the input tax credit relating to the following:

(a) Transitional stock of specified products

(b) Capital goods exclusively used for specified products

(c) Capital goods used for specified products and other products (e.g.

cement, etc.) (d) Other inputs and input services (i.e. other than specified products)

TAXMANN’s Research and Advisory Comments: If the supplier is registered under the normal scheme and chooses to pay tax at a lower rate i.e. 6%, he would be required to reverse the ITC relating to the transitional stock of specified products. In addition, proportionate credit of capital goods is also required to be reversed in terms of Rule 43 of the CGST Rules. The ITC would be required to be paid back even if the supplier has utilized the same.

Notably, no ITC reversal would be required in respect of those goods or services which are not used for the supply of specified products. The supplier may continue to avail and utilize such ITC.

9 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector

Q 2.

We are the manufacturer of bricks and dealer of cement. We have opted to pay GST at the rate of 6% on the supply of bricks under the new tax structure.

Can we use the ITC available in respect of cement to discharge GST liability of 6% on the supply of bricks?

TAXMANN’s Research and Advisory Comments: There is no restriction on utilization of ITC otherwise available in respect of other businesses for discharging GST liability on the supply of specified products. In our view, the supplier can use such ITC for discharging their GST liability for the supply of specified products.

In this regard, one may note that in a similar scenario in the context of the food aggregators industry, where the GST rate is 5% (without ITC) on the supply of food, the CBIC has clarified that while discharging the GST liability on the supply of food, the food aggregator cannot utilize the ITC which is available in their business. In view of the above clarification, the GST authorities can challenge such utilization. However, in our considered view, the supplier can utilize the ITC which is available to them in their other businesses to discharge the impugned GST liability of 6%. The said clarification is not in line with the GST legislation.

Q 3.

We are currently registered under the normal scheme (i.e. paying 5% GST) and opting to pay tax at the higher rate of 12% under the new scheme. Do we need to reverse the input tax credit on the transitional stock (i.e. purchased before April 1, 2022)?

TAXMANN’s Research and Advisory Comments: The supplier of the specified products who opts to supply such goods at a higher rate of tax i.e. 12% would not be required to reverse any Input Tax Credit.

TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 10

Q 4.

We are presently registered under the composition scheme of Section 10 of the CGST Act. How can we choose to opt the new tax structure?

TAXMANN’s Research and Advisory Comments: Being a manufacturer, you would need to withdraw9 yourself from the existing composition scheme. In this regard, it is necessary to file an application in Form GST CMP-04 on the GSTN portal.After such withdrawal, the person would automatically treated to be registered under the normal scheme. The taxpayer can simply start discharging GST at the desired rate (6%/12%) as the Government, as such, has not notified any special manner of opting under the new scheme.

Q 5.

We are presently registered under the Composition Scheme of Section 10 of the CGST Act. What would be the GST implications on us under the new scheme?

TAXMANN’s Research and Advisory Comments: Being the manufacturer the implications under the new scheme for the persons registered under composition scheme of Section 10 of the CGST Act would be as under: No benefit of Composition scheme With effect from April 01, 2022, the suppliers of the specified products are not eligible for the composition scheme under Section 10 of the CGST Act. Hence, they would need to opt out from the composition scheme. In this regard, intimation would be required to be filed in Form GST CMP-04 on the GSTN portal.

Availing input tax credit on transitional stock: A taxpayer opting to pay tax at the higher rate (i.e. 12%) would be eligible to avail of the ITC in respect of all the inputs held in stock, inputs contained in semi-finished, finished goods held in stock and capital goods used in the supply of all goods or services in a specified manner.

9 Rule 6(3) of the CGST Rules, 2017 11 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector

Under the new scheme, the person opting to pay tax at the lower rate (i.e.

6%) would not be able to avail ITC in respect of goods or services (common or exclusive) used in the supply of specified products. Such supplier would, however, be eligible to avail ITC in respect of other inputs held in stock, inputs contained in semi-finished, finished goods held in stock and capital goods used in the supply of other goods in a specified manner.

Issuance of tax invoices Taxpayers transitioning from the existing composition scheme to the new scheme would be required to issue tax invoices instead of the bill of supply for the supply of specified products.

Filing monthly/quarterly returns Taxpayers would also be required to comply with the monthly return compliance and file Form GSTR-1 and GSTR-3B, wherein the details of outward supplies, inwards supplies, payment of tax, etc. are furnished. The supplier, if eligible, may also opt for Quarterly Return and Monthly Payment (‘QRMP’) scheme.

Traders of specified products can continue to avail composition scheme The restriction for not availability of composition scheme merely applies on the manufacturer supplier. The trader can continue to avail the benefit of the composition scheme under Section 10 of the CGST Act.

Q 6.

I (manufacturer of specified products) am opting to pay tax at the lower rate of 6%. What other benefits would I be able to avail of apart from this lower rate?

TAXMANN’s Research and Advisory Comments: The new scheme is not like the existing composition scheme of Section 10 of the CGST Act. The Government has not notified any special benefits apart from the lower rate of tax (6%). You would be required to comply with the general provisions under the GST law such as issuance of documents under GST, filing of regular returns, payment of tax as per the rate notifications, etc.

TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 12

Q 7.

I (manufacturer of specified products) am opting to pay tax at the rate of 6% under the new tax structure.

What documents would I be required to issue for supply of specified products? Whether my customer would be able to avail ITC on such document/such supplies?

TAXMANN’s Research and Advisory Comments: As already discussed, the new scheme is not like the existing composition scheme of Section 10 of the CGST Act. The scheme restricts the claim of ITC for the supplier of specified products only and not for the recipient of such goods. The recipient can avail the ITC of the GST charged by the supplier of specified goods if their ITC is not otherwise restricted by the GST law.

The supplier would be required to issue a tax invoice (whether he is charging a 12% rate or 6% rate of GST) for the supply of specified products.

Q 8.

Can we charge 6% GST on one bill and 12% on another bill for the supply of specified products in the same tax period?

TAXMANN’s Research and Advisory Comments: The normal GST rate on the supply of specified products is 12% and the rate of 6% is provided by way of issuance of an exemption notification.

The language of the exemption notification that prescribes 6% GST rate is subject to the condition that ITC cannot be availed. If the person opts to avail ITC, he would not be entitled to avail the lower GST rate. Given this, the benefit of 6% GST is optional and should be interpreted transaction wise.

Reference in this regard may be made to a similar notification issued in respect of Merchant Export supplies where the benefit of a 0.10% GST rate is provided10 for the supply of goods by the supplier to the Merchant Exporter.

In this regard, the CBIC has clarified11 that the benefit of the concessional rate is optional and the supplier may or may not avail of the benefit and supply the goods at the normal applicable tax rate.

10 Notification No. 02/2022-Central Tax (Rate), dated March 31, 2022 11 Circular No. 37/11/2018-GST, dated 15th March 2018 13 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector

Q 9.

Do we need to revise our contracts with customers in respect of the supply of specified products?

TAXMANN’s Research and Advisory Comments: The contracts, wherever entered, should be reviewed in view of the changes brought by the Government in the GST rates. Depending upon the nature of the contract, the terms may be reviewed and changes, if needed, should be incorporated.

Q 10. We are a supplier of specified products and are not registered under GST as our aggregate turnover is less than 40 Lakhs. Are we affected by the given amendments notified by the Government?

TAXMANN’s Research and Advisory Comments: Persons supplying the specified products would now be liable to take registration under the GST law if their aggregate turnover during the year exceeds Rs. 20 lakhs. The existing threshold limit for registration has been reduced from 40 lakhs to Rs. 20 lakhs.

Where the registration is applied within 30 days from the date of becoming liable to registration, the supplier would be entitled to avail ITC on the stock of inputs (say coal, etc.) available as on April 01, 2022.

Notably, where the supplier opts to pay tax at the rate of 6% under the new tax structure, ITC in respect of goods used in the supply of such specified goods cannot be claimed. Further, if the person (who is trader) opts for the composition scheme under Section 10, the ITC would not be available.

Note: The above comments are for guidance purposes and cannot be construed as a legal advisory. In case of any clarification or query, feel free to reach us at connect@taxmann.com.

TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 14

15 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector

Our Associations INCOME TAX DEPARTMENT

INDIAN INSTITUTE OF BANKING & FINANCE

INCOME-TAX APPELLATE TRIBUNAL

NATIONAL INSTITUTE OF SECURITIES MARKETS An Education Initiative of SEBI

TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 16

About TAXMANN Our mission at Taxmann is ‘Spearheading the pursuit of expertise & authenticity’. We at Taxmann strive to provide authentic and fastest reporting of information. We are proud to call ourselves the #1 source for everything on Tax and Corporate Laws in India. Our domain knowledge of more than 60 years has helped us in being trusted by more than 500K legal professionals across the country.

Taxmann Alliance is the only publishing house in India with complete backward and forward integration, right from self-owned paper printing unit to in-house research and editorial team, and finally reaching the readers through its own distribution network all across India.

The group has also ventured into the in-house technologies division since 2007.

Taxmann Alliance consists of four independent verticals: u

Research & Editorial

Taxmann Research & Editorial comprises of an enthusiastic team of over 200 Legal associates. They are responsible for keeping the readers abreast of the latest developments in the judicial, administrative and legislative fields in the form of authentic articles and updates. u

Sales & Marketing At Taxmann, we believe in marketing our products through various refined sales channels, with a diverse network of Dealers & Distributors and an in-house marketing team.

A quick preview of the strength of our sales is listed below: State

u

Talent Count

Delhi-NCR

50+

Maharashtra

50+

Gujarat

45+

Karnataka

25+

Tamil Nadu

15+

Andhra Pradesh & Telangana

15+

West Bengal

10+

Rajasthan

10+

Independent Dealers & Distributors, Pan-India

900+

Printing Tan Prints has been carrying out specialized printing jobs since the 1980s in their beautifully landscaped facility spread over 10,000 sq. meters. Tan Prints has a strong presence in Nigeria, Ghana, Ethiopia, Rwanda, Uganda and Kenya. It not only caters to reputed Book Publishers but also Governments, Universities and Institutes.

u

Technologies

Taxmann’s excellent team of professionals offers the best in class end-to-end website and App designing, development and maintenance solutions.

17 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector

Contact Us Taxmann Group Research & Editorial 21/35, West Punjabi Bagh, New Delhi – 110026 Mobile : +91-11-45662200 E-mail : editorial@taxmann.com

Printing - Tan Prints 44 Km. Mile Stone, National Highway, Rohtak Road Village Rohad, Distt. Jhajjar (Haryana) Phone : 01276-278155-56 Mobile : 9896514100 E-mail : sales@tanprints.com Technologies 10/43, West Punjabi Bagh, New Delhi – 110026 Phone : +91-11-46462222 E-mail : sales@taxmanntechnologies.com

Sales & Marketing Delhi 59/32, New Rohtak Road, New Delhi – 110005 (India) Phone : +91-11-45562222 For Support Enquiry E-mail : support@taxmann.com For Sales Enquiry E-mail : sales@taxmann.com

Mumbai 35, Bodke Building, Ground Floor, MG Road, Opp. Mulund Railway Station, Mulund (W), Mumbai - 400080 Phone : +91-022-25934806/07/09, 25644807 Mobile : 9322247686, 9619668669 Email : sales.mumbai@taxmann.com

Pune Office No. 14, First Floor, Prestige Point, 283 Shukrwar Peth, Opp.Chinchechi Talim, Nr. BSNL office, Bajirao Road, Pune-411002, Mobile : 822411811, 9834774266, 9322293945 Email : sales.pune@taxmann.com

Ahmedabad 7, Abhinav Arcade, Ground Floor, Nr. Bank of Baroda, Pritam Nagar Paldi, Ahmedabad – 380007 Phone : +91-079-26589600/02/03 Mobile : 9909984900, 9714105770, 9714105771 Email : sales.ahmedabad@taxmann.com

Hyderabad 4-1-369-Indralok Commercial Complex Shop No. 15/1 Ground Floor, Beside Hotel Jaya International Reddy Hostel Lane Abids Hyderabad – 500001 Mobile : 9391041461, 9322293945 Email : sales.hyderabad@taxmann.com TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector | 18

19 | TAXMANN’s Guidance Note on new GST rates structure introduced for Brick Kilns Sector