Getting ready to face GST 12 2016 by

Getting ready to face GST 12. 2016 by g. natarajan, advocate, swamy associates

Topics to be covered… v Input Tax Credit. v Input Service Distributor. v Transitional Provisions. v Job work.

Input Tax Credit. Definitions – Sec. 2: (52) “input” any other capital means goods than goods used or intended to be used by a supplier in the course or furtherance of business. (53) “input any usedbe service” intended service to or used by a supplier in the course or furtherance of business. (19) “capitalgoods”meansgoods, thevalueofwhichis capitalized in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business.

Input Tax Credit. Definitions: (55) "input tax" in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes the tax payable under sub-section (3) of section 8, but does not include the tax paid under section 9. (56) “inputtaxcredit”meanscreditof‘inputtax’as defined in sub-section (55)

Eligibility and conditions Sec. 16. • Credit in Electronic Credit Ledger. • Credit for pipelines / telecommunication towers, in three annual instalments. • For all other capital goods, full credit in the year of receipt. • Possession of tax invoice / debit note or any other prescribed document. • Receipt of goods and services.

Eligibility and conditions Sec. 16. • Payment of tax by the supplier, either in cash or through admissible input tax credit. • Filing of monthly return under Sec. 34 by the person claiming credit. • Goods despatched in lots – credit to be taken on receipt of last lot.

Eligibility and conditions Sec. 16. • Payment of value and tax to the supplier of service, within 3 months. • No depreciation can be claimed on the tax portion on capital goods, for which credit is availed. • Any credit to be availed before filing monthly return for next September (20 th Oct) or filing of Annual return for the year (31 st Dec), whichever is earlier.

Rule 6 is now Sec. 17. • Credit eligible for - Taxable supplies in the course of business. Zero rated supplies (Export / SEZ). • Credit not eligible for - Non business use. Exempted supplies (Non taxable, Nil rated, exempted and reverse charge supplies)

Credit ineligible for – Sec. 17 (4). (a) Motor vehicles – except when used - for further supply of such vehicles (car dealers) for transport of goods & passengers driving schools. for transportation of goods. -

Credit ineligible for – Sec. 17 (4). (b) Supply of goods and services, namely (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services; (ii) membership of a club, health and fitness centre, (iii) rent-a-cab, life insurance, health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; and (iv) travel benefits extended to employees on vacation such as leave or home travel concession.

Credit ineligible for – Sec. 17 (4). (c) works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service; (d) goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business; Explanation 1. - For the purpose of this clause, the word “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. Explanation 2. - ‘Plant and Machinery’ means apparatus, equipment, machinery, pipelines, telecommunication tower fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes land, building or any other civil structures.

Credit ineligible for – Sec. 17 (4). (e) goods and/or services on which tax has been paid under section 9 (Tax paid under composition scheme). (f) goods and/or services used for personal consumption; (g) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; - Impact on warranty supplies. - Buy one get one free / combination packs. (h) any tax paid in terms of sections 67, 89 or 90. - Fraud, suppression, seizure and confiscation cases.

Special provisions – Sec. 18. Credit of taxes paid on inputs in stock, contained in work in progress and finished goods Ø for persons obtaining fresh registration under GST. Ø for persons voluntarily applying for registration. Ø for persons switching over from composition scheme to regular scheme – including credit for capital goods. Ø when an exempted supply becomes taxable supply – including credit for capital goods. In all the above cases, invoice should be less than one year old.

Special provisions – Sec. 18. ØTransfer of credit to transferee of business allowed. Ø Person switching over from regular scheme to composition scheme, or where the taxable goods being exempted – credit of taxes in respect of inputs lying in stock, contained in work in progress, finished goods and capital goods, to be reversed and balance credit shall lapse.

Special provisions – Sec. 18. Removal of used / credit availed capital goods. ØSupply of credit availed capital goods – proportionate credit reversal as per formula or tax on transaction value, whichever is higher shall be paid. Ø For supply of credit availed refractory bricks, moulds and dies, jigs and fixtures, as scrap – tax on transaction value shall be paid.

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

Input Service Distributor. If ISD and recipient are in different States If ISD and recipient are in the same State • CGST as CGST or IGST (CGST Act) • IGST as IGST or CGST (CGST Act) • SGST as SGST or IGST (SGST Act) • CGST and IGST as CGST (CGST Act) • SGST and IGST as SGST (SGST Act)

ISD @ Bangalore Factory @ Bangalore CGST as CGST IGST as CGST/SGST as SGST

ISD @ Bangalore Factory @ Chennai CGST as CGST/IGST as IGST /CGST SGST as SGST/IGST

Input Service Distributor. Ø One to one distribution of exclusive credits. Ø Common services – proportionate distribution for relevant recipients. Ø Aggregate turnover as defined in Sec. 2 (6). Ø Any recoveries to be from the recipients. Ø Proportionate reversal for exempt supplies would apply at recipient level.

Job work. Ø Job work means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression “job worker” shall be construed accordingly – Sec. 2 (61). Ø Principal entitled to take input tax credit for taxes paid on inputs / capital goods, even if the inputs are directly sent to job worker – Sec. 20 (2).

Job work. Ø If the inputs are not returned within one year / capital goods within three years, it shall be deemed as a supply by principal to job worker and the principal shall pay applicable GST – Sec. 20 (3). Ø No time limit for moulds, dies, jigs, fixtures and tools – Sec. 20 (7).

Job work – Sec. 55. Ø Removal of inputs / capital goods to job worker without payment of tax permitted – Sec 55. Ø Movement from one job worker to another job worker, without payment of tax, permitted. Ø Direct removal from job worker’s premises is also permitted on payment of tax. - Job worker place to be declared as additional place of business, except where the job worker is registered / principal dealing in notified goods.

Job work – Sec. 55. Ø If not returned within the specified period – Principal to pay tax on the original supply. Ø Job worker cannot take credit of such tax. Ø Job worker need not pay tax while returning the processed goods, as it is not a supply, in the absence of consideration. Ø Job worker to pay GST on job charges. Ø There is no provision to take back the credit as and when the processed goods / inputs / capital goods are returned to the principal.

Transitional provisions.

Transitional provisions. • Cenvat Credit / VAT & Entry tax credit as per the last return under earlier law, to be carried forward as opening balance of ITC under GST – Sec. 167. - Avail all unavailed credit before 01. 04. 17. - Balance of Education CESS / SHE CESS? • Unavailed Cenvat Credit / VAT credit on eligible capital goods, can be availed as ITC under GST – Sec. 168.

Transitional provisions. • ITC for inputs lying in stock, contained in WIP / FG – Sec. 169. - Applicable for persons who were not registered under earlier law, but who is liable to be registered under GST. - Manufacturing exempted goods / providing exempted services under earlier law, but which are taxable under GST. - Works contract service providers. - FSD/SSD/Importers

Transitional provisions. Sec. 169 - Conditions. - Such inputs to be used in taxable supplies. - Benefit of credit passed on to customers by reduced price. - Such goods are entitled to credit under this Act. - Documents not older than one year are available. - No abatements are claimed. - Except for manufacturers, a deemed credit mechanism may be introduced. - List of eligible taxes includes Service Tax – Implications?

Transitional provisions. Sec. 169 contd… This provision will enable - VAT dealers who were not registered earlier under Central Excise, to avail ITC of CE duty paid on inputs. - Service providers who were not registered under VAT, to avail VAT paid on inputs.

Transitional provisions. Sec. 170 Ø A person who was manufacturing both dutiable and exempted goods / providing both taxable and exempted services under the earlier law – entitled for both Sec. 167 and 169.

Transitional provisions. Goods in Transit - Sec. 171 Ø Eligible duties / taxes paid on inputs and input services, received after 01. 04. 2017, but the duties / taxes on the same have been paid before 01. 04. 2017, credit would be allowed under GST law, if the invoice is accounted before 30. 04. 2017 (can be extended upto 30. 05. 2017 if sufficient cause shown). Ø No such provision for capital goods in transit.

Transitional provisions. “Composition tax payers” under earlier law - Sec. 172. - Persons paying lesser rate of Service Tax / claiming abatements, who were not eligible for credit on inputs, under earlier law. - Persons paying VAT under the composition schemes. - If they do not opt for composition under GST. - Similar conditions.

Other transitional provisions Erstwhile exempted goods returned after 01. 04. 2017 – Sec. 173. Situation Originally cleared before 01. 10. 2016 Liability GST has to be paid by the person returning the goods, if the goods are leviable to GST. Originally cleared on or after GST need not be paid if 01. 10. 2016 returned on or before 30. 09. 2017. GST to be paid, if returned on or after 01. 10. 2017 and the goods are leviable to GST.

Other transitional provisions Duty paid goods returned after 01. 04. 2017 – Sec. 174. Situation Liability Originally cleared on or after 01. 10. 2016 Duty paid earlier can be claimed as refund, if returned by unregistered person. If returned by registered person, he shall pay GST on return. Originally cleared before 01. 10. 2016 No specific provisions. Returning person should pay GST if he is registered. He need not pay GST if he is not registered. In any case, no refund for original supplier.

Other transitional provisions Goods lying with job workers Sec. 175 & 176 (inputs and semi finished goods). Situation Liability Returned by job worker on or before 30. 09. 2017 (or can be extended upto 30. 11. 2017) No liability. Not returned by job worker before 01. 10. 2017 (or before 01. 12. 2017 is extension if allowed) Input tax credit to be recovered from principal. No provision to avail back the credit as when they are returned.

Other transitional provisions Finished goods removed for test, etc. Sec. 177. Situation Returned back on or before 30. 09. 2017 (or can be extended upto 30. 11. 2017) Liability No liability. Not returned before 01. 10. 2017 Input tax credit to be recovered (or before 01. 12. 2017 is extension from principal. if allowed) What if they are returned after this date and again supplied to some other person?

Other transitional provisions Price revision - Sec. 178 - Upward price revision based on contracts entered prior to 01. 04. 2017 – Debit note / Supplementary invoice to be raised by supplier and GST to be paid. - Downward price revision based on contracts entered prior to 01. 04. 2017 – Credit note to be raised by supplier – Suppler can reduce his tax liability, if corresponding credit reversed by recipient.

Other transitional provisions Pending refund claims to be dealt with under old law and paid in cash– Sec. 179, 180 & 181. If any refund of credit is rejected, it shall lapse. Appellate remedy? Disputes on Credit under old law – Sec. 182. Eligible refund of credit to be paid in cash. Ineligible credit to be realised as GST liability.

Other transitional provisions • Pending demands under earlier law to be disposed of under earlier law – Sec. 183 (appeals), 184 (adjudication) and 185 (revised return). • Amount refundable to be refunded in cash. • Amount recoverable to be recovered as GST arrears.

Other transitional provisions • Long term construction contracts / works contracts – Sec. 186. • Supply of goods / services under old contracts would attract GST, after 01. 04. 2017. • Contract terms to be revisited. • To re-negotiate with Customers.

Other transitional provisions • No GST for the supplies made after 01. 04. 2017, if the consideration is received prior to 01. 04. 2017 and tax paid under earlier law Sec. 187. • If POT for any service falls before 01. 04. 2017, service tax under earlier law shall be paid Sec. 188.

Other transitional provisions • Distribution of credit by ISD – Sec. 190. • Services received prior to 01. 04. 2017, invoices received after 01. 04. 2017 could be distributed as GST credit.

Other transitional provisions • Persons having centralised registration under the earlier law, can take the earlier cenvat credit balance, in any of his new registered place, at his option – Sec. 191 • Vat credit in respect of goods lying with agent – can be claimed by agent. • If Service tax credit was reversed earlier for non payment of bill value within 3 months, credit can be taken under GST, if payment is made within 30. 06. 2017.

Sec. 21 of IGST Act • Import / Inter-state supply made after 01. 04. 2017 would attract IGST, even if the transaction is initiated before 01. 04. 2017 (raising of invoice / payment in full or part). • If full tax paid under earlier law, no IGST liability. • If part tax paid under earlier law, IGST payable on the remaining portion.

Credit matching S. No. Details Amount 1 ITC Claimed for inward supplies in the month of Rs. 3, 000 July 2017 2 ITC auto populated on the basis of outward supply returns filed by suppliers Rs. 2, 000 3 ITC not matching Rs. 1, 000 4 GST liability on outward supplies for the month of July 2017 Rs. 10, 000 5 ITC adjusted against the above liability Rs. 3, 000 6 GST paid in cash Rs. 7, 000 7 Discrepancy communicated in Aug 2017 for Rs. 1, 000 8 Discrepancy corrected during Aug 2017 for Rs. 40, 000 9 Discrepancy not rectified - to be added in the output liability for the month of Aug 2017 Rs. 60, 000