Goods and Services Tax Laws

INTRODUCTION AND BRIEF

SUMMARY (29 June 2018)
 Economic Reform in GST
• Consumption based tax.
• Earlier Central Excise , Service Tax etc. used to be
pooled and credit given to states from where supplies
originated.
• Under GST law the tax will be share of the states
where it is consumed.
• Under old scheme the prosperous states used to
prosper more , now less prosperous states shall
prosper more on consuming goods and services
supplied by prosperous states.
 Importance in Finance management

• 1. GST impact Market Price

• 2. GST impact cost of purchase.
• 3. GST impact Cash Flow.
• 4. GST impact business model
• 5. GST impact consumer/customers.
• 5. GST impact supply chain management.
• 6. GST impact Income and Income Tax
 Laws subsumed
• 1. Central Excise Law except for Petrol and
Diesel.
• 2. Service Tax Law
• 3. VAT law of states
• 4. Inter State Tax - CST Act.
• 5. CVD in Customs Act
• 6. Octroi.
 Laws enacted
• 1. The Constitution ( One hundred and first Amendment) Act ,
2106 dated 8/9/2016
• 2. CGST – Central Goods and Services Tax Act , 2017 dated
12/4/2017
• 3. SGST – Each State goods and services tax Act , 2017 ( all
passed before 30/6/2017)
• 4. IGST – Integrated Goods and Services Tax Act, 2017 dated
12/4/2017
• 5. The Goods and Services Tax ( Compensation to States) Act
2017 dated 12/4/2017
• 5.
 Effective Date and Rate of Tax
1. Came into force from 1st July 2017
2. Rate of Tax – as notified from time to time
common for entire country as decided by
GST council which consist of Finance
Ministers of each state and the Union
Finance Minister.
 Products still to be covered
• As on 29th June 2018.
• 1. Alcohol ( covered by State Excise laws)
• 2. Petroleum products ( Brought into the law
of GST but effective date not notified. Till
notified central excise and vat levy to
continue)
 Important Definitions
• 1. Goods – Sec 2(52) CGST Act means all movable property (NOT
money and Securities)
• 2. Services – Sec 2(102) CGST Act means transactions other than
for movable property , money or securities .
• 3. Supply – Sec 7 of CGST Act – explained in detail
• 4. Business – inclusive definition trade commerce , vocation , any
activity including capital assets , services by club , association ,
society , state and central government local authority services
• 5. Consideration – money or otherwise , forbearance not subsidy
• 6. Person – Individual , HUF , Firm , LLP , Company , AOP , Trust ,
Society , Central / State Govt Local authority
 Rate of tax
• Different rate for different goods and services
• List of goods and services notified with rates applicable
for each.
• Such rates shall be uniform for entire country
• 0% , 5% , 12% , 18% , 28% etc.
• If rate is 12% and the supply is within state 6% shall be
CGST and 6% shall be SGST.
• If rate is 12% and the supply is Inter State 12% shall be
paid under IGST for future adjustment between CGST
and SGST of the state where it is consumed.
 Supply ( Sec.7)
• 1. Taxable event is supply
• 2. Both supply of goods and services covered
• 3. Sale , Transfer , Barter , Exchange , License ,
Rental , lease for a consideration in the course
or furtherance of business.
• 4. Import of services for consideration ( even if
it is not in furtherance of business)
 Deemed Supply
• Schedule I – Activities without consideration
a. Permanent transfer of business assets on
which ITC has been taken
b. Supply between related persons in the course
of business
c. Supply of goods between
principal/agent/principal
d. Import of services from related person or his
other establishments outside India
 Supply of goods / services
• Schedule II – Activities which are deemed to be supply of Goods or
Services
a. Transfer of title in goods is supply of goods
b. Lease / Tenancy of land or building is service
c. Treatment or process on other persons goods – service
d. Construction of property is service
e. Temporary transfer for use of IPR is service
f. IT software development is service
g. Agreeing to refrain from an act - Say non compete agreement –
service
h. Though composite supply – works contract and restaurant services
are services.
 Not supply
• Schedule III – Negative List
• Neither supply of goods nor services
• Service by employee to employer
• Services by Court / Tribunals
• MP / MLA / Members of Corporations / Panchayats
• Funeral / Burial / Crematorium
• Sale of Land
• Sale of complete building
• Actionable claims ( other than lottery , betting , gambling)
• NO ITC
 Composite & Mixed Supplies
• Composite Supply : 2 or more supplies in which one is
principal supply – Rate applicable to principal supply
shall apply – Say ready made shirts + Packing boxes +
Transport & Insurance
Air ticket with On board free food + free insurance
• Mixed Supply : Mix of 2 or more supplies which could
otherwise can be supplied separately – Rate of Tax is
highest rate of tax as applicable in the mix. Say Gift
pack – Canned fruits + Chocolates + Aerated drink for
single price
 Exempt supply
• Taxable supply but exempt from payment of tax as per notification 12/2017
dt.28/6/2017 of Government of India (MOF) – say :
• a. Supplies by persons registered under Sec 12AA of IT Act
• b. Transfer of going concern as a whole
• c. Postal services other than speed post , life insurance and parcel services
• d. Pure labour contracts for single residential unit.
• e. Renting of residential house for residence
• f. Hotel club etc. for accommodation with charges less than Rs.1000/- per
day
• g. Services provided by educational institutions to students faculty and staff
• H. Services by medical practitioners etc. etc.
• NO ITC
 Zero Rated supply
• Sec 16 of IGST Act
• Supply relating to exports of goods or services
• Supply to SEZ
• Even if it is exempt supply shall pay GST and
claim refund.
• Exemption from payment by provision of
Undertakings are also available.
• ITC AVAILABLE AND REFUND CAN BE CLAIMED.
 GST and Import of Goods
• 1. GST on import of services are covered by
GST as no customs duties apply as that relate
to goods.
• 2. However for import of goods not only
Customs duties but also GST have to be paid.
LEVEL PLAYING FIELD exercise.
 Summary of supply on which tax to be paid

• 1. Fall within definition of supply

• 2. Deemed supply
• 3. Not in the negative list
• 4. Is not exempt from payment of tax
• 5. Relating to exports subject to conditions for refund.
• 6. Import of goods and services
• Who will pay the tax to government :
• Ordinarily the supplier is liable to pay the tax but in certain
cases as notified the recipient of service or goods shall be
liable to pay the tax known as REVERSE CHARGE MECHANISM
 Reverse charge mechanism
• For certain goods and services as notified the person
receiving the services ( not supplier ) is liable to pay the GST .
• Provision introduced in July 2017 for payment of GST on
goods and services from unregistered persons is suspended
till 30th June 2018.
• ITC is available even for GST paid under reverse charge
mechanism.
• Some such cases are :
Cashew grown by agriculturist , Silk yarn , Directors Fees ,
Legal services to Corporate , GTA services to Corporate /
Factories , import of goods and services etc.,
 Time and Place of supply
• This will decide which tax to be paid and when
• Invoice , supply date or payment date which
ever is earlier is time of supply
• Tax are of 2 types based on place of supply :
• a. Within state - CGST + SGST ( 50% : 50% )
• b. Outside the state – IGST – which ultimately
will be distributed CGST and SGST depending on
the last destination.
 Classification of Goods and Services

• 1 Very important exercise.

• 2. Rate of tax will depend on classification.
• 3. Incorrect classification lead to wrong
payment of tax.
 Value of supply
• Ordinarily transaction value
• Arms length price
• Full consideration other than taxes under this
law.
• Trade discount credit admissible not cash
discount
• Pure agent concept
• Cannot be ascertained then 110% of cost.
 Threshold for registration
• Rs.20 Lacs annual turnover in previous year
for supplier of goods or service
• No threshold limit for reverse charge
mechanism liability
• Rs.100 Lacs for composition levy
 Composition Levy
• Registration compulsory
• To opt
• Only for suppliers of goods NOT for service providers ( except for restaurant
services)
• No ITC available
• No Inter state supply can be made
• Basically for small local suppliers who have crossed the limit of Rs.20 Lacs.
• Maximum limit of annual turnover is Rs.100 Lacs
• Inter state purchase permitted from Registered suppliers
• No monthly returns only quarterly returns to be filed.
• GST rate shall be 2% for Manufacturers , 1% for traders and 5% for restaurant
services.
• This tax cannot be recovered from customers.
 Documentation and GSTN portal
• 1. Output supply recording .
• 2. Input supply NO RECORDING only verification.
• 3. Output GST liability
• 4. ITC on inputs
• 5. Recording NIL rate , Excluded and Exports.
• 5. Net Tax payment
• 6. Claiming Refunds
• 7. All through the GSTN portal
 Input Tax Credit and Set off rules
• Objective is to eliminate cascading effect of taxes.
• ITC available if out tax is leviable ( except for exports)
• ITC shall be separate for CGST , SGST (statewise) and IGST paid
on input.
• CGST can be used for CGST and then for IGST ( NOT SGST) -
STATEWISE
• SGST can be adjusted first against SGST and then against IGST
( NOT CGST) - STATEWISE
• IGST is first adjusted against IGST and then CGST and then SGST.
– IRRESPECTIVE OF STATE BUT BASED ON SAME PAN.
• ITC can be reversed if payment of bill not made within 180 days.
Filing of returns and on line control
• All Returns through on line portal.
• Registered persons to submit details of supplies and invoice
details of their output supplies.
• Auto credit for input supplies will be generated based on
out put supply details.
• ITC credit available only based on online entries.
• ITC to be reversed if bills not paid within 180 days.
• Monthly returns , half yearly returns and Annual returns for
Registered suppliers but quarterly returns for composition
levy cases. No returns for unregistered suppliers.
 Penalties
• 1. GSTR filing late – Rs.100/- p.d.CGST and Rs.100/- p.d. SGST.
Maximum Rs.5000/-
• 2. Non filing of GSTR – 10% of tax due or Rs.10000/- WEH
• 3. Fraud / wrongfully charging rate / not issuing invoice / Not
taking Registration – 100% tax due or Rs.10000/- WEH
• 4. High value fraud – Prosecution and jail.
• 5. Jail term Rs.100 to Rs.200 lacs – 1 year , upto Rs.500 lacs 3
years and above Rs.500 lacs – 5 years
• 6. Helping others to commit fraud – upto Rs.25000/-
• 7. Besides penalty even Interest is payable for delayed
payment @ 18% p.a.
 Assessments
• 1. Self assessment
• 2. Provisional assessment
• 3. Scrutiny assessment
• 4. Best judgment assessment for non filers
and unregistered persons
• 5. Summary assessment where delay to pay
tax occur.
 Appeals / AAR
• 1. 1st appeal before Commissioner (Appeals)
• 2. 2nd Appeal before Tribunal
• 3. Then to High Court and Supreme Court on
only substantial questions of law.
• 4. 10% of disputed tax liability to be
deposited for admission of appeal
• 5. AAR – or advanced rulings is to avoid
disputes , attract FDI .