Goods and GST Bill passed

[Ganeshan Kalyani]

Dear All,

GST Bill is passed in Rajya Sabha on 03. 08.2016.

A panel under chief economic adviser Arvind Subramanian has recommended a revenue-neutral rate of 15-15.5%, with a standard rate of 17-18% be levied on most goods and all services.

But, there has been no agreement yet on rates of various goods and services, which remains a tricky issue. According to the Bill, passed in the Lok Sabha in May 2015, the rates were to be decided by a GST council headed by the central finance minister with state finance ministers as members.

Let us wait.

Thanks.

[Ganeshan Kalyani]

All the returns are to be filed online. Returns can be filed using any of the following methods:

1. GSTN portal (www.gst.gov.in )
2. Offline utilities provided by GSTN
3. GST Suvidha Providers (GSPs) – If you are already using the services of ERP providers such as Tally, SAP, Oracle etc., there is a high likelihood that these ERP providers would provide inbuilt solutions in the existing ERP systems

[Ganeshan Kalyani]

Return Filing Process

A normal taxpayer has to file the following returns:

1. GSTR-1 (For reporting outward supplies)
2. GSTR-2 (For reporting inward supplies)
3. GSTR-3 (Monthly consolidated return)
4. Annual Return

[Ganeshan Kalyani]

GSTR-1 (Statement of Outward Supplies): This return signifies the tax liability of the supplier for the supplies effected during the previous month. It needs to be filed by the 10th of every month in relation to supplies effected during the previous month. For example, a statement of all the outward supplies made during the month of July 2017 needs to be filed by 10th August, 2017.

[Ganeshan Kalyani]

GSTR-2 (Statement of Inward Supplies):This return signifies accrual of ITC (Input Tax Credit) from the inputs received during the previous month. It is auto-populated from the GSTR-1s filed by the corresponding suppliers of the Taxpayer except for a few fields like imports, and purchases from unregistered suppliers.

It needs to be filed by the 15th of every month in relation to supplies received during the previous month. For example, a statement of all the inward supplies received during the month of July 2017 needs to be filed by 15th August, 2017.

[Ganeshan Kalyani]

GSTR-3 (Monthly return): This is a consolidated return. It needs to be filed by the 20th of every month. It consolidates outward supplies, inward supplies, tax payable, ITC etc.

NOTE: Payment of GST is to be made on or before 20th of every month.

[Ganeshan Kalyani]

Annual Return: This return needs to be filed by 31st December of the next Financial Year. In this return, the taxpayer needs to furnish details of expenditure and details of income for the entire Financial Year.

[Ganeshan Kalyani]

GSTR-1 (Statement of Outward Supplies): File via GSTN/Easy upload tools provided by GSTN/GSPs. Periodical uploading allowed. Filed by 10th. Frozen after 10th.

GSTR-2 (Statement of Inward Supplies): Auto-populated from GSTR-1s filed by a Tax Payer’s Suppliers. Changes allowed between 10th and 15th. Filed by 15th.

What happens after 15th? – Tax Payer can add additional invoices. Supplier has the option to accept/reject additional invoices. Supplier’s GSTR-1 gets amended to that effect.

GSTR-3 (Monthly return): Auto-populated from GSTR-1 and GSTR-2. Filed by 20th.

[Ganeshan Kalyani]

Revision of Returns

The mechanism of filing revised returns for any correction of errors/ omissions has been done away with.The rectification of errors/ omissions is allowed in the subsequent returns.

However, no rectification is allowed after furnishing the return for the month of September following the end of the financial year to which, such details pertain, or furnishing of the relevant annual return, whichever is earlier.

[Ganeshan Kalyani]

Goods and Service Tax (GST) does not permit any revision of GST returns, which may create some challenges for taxpayers.

[Ganeshan Kalyani]

A taxable event under GST is supply of goods or services or both. GST will be payable on every supply of goods or services or both unless otherwise exempted. The rates at which GST is payable for individual goods or services or both is also separately notified Classification of supply (whether as goods or services, the category of goods and services) is essential to charge applicable rate of GST on the particular supply. The application of rates will pose no problem if the supply is of individual goods or services, which is clearly identifiable and the goods or services are subject to a particular rate of tax.

[Ganeshan Kalyani]

But not all supplies will be such simple and clearly identifiable supplies. Some of the supplies will be a combination of goods or combination of services or combination of goods and services both. Each individual component in a given supply may attract different rate of tax. The rate of tax to be levied on such supplies may pose a problem in respect of classification of such supplies. It is for this reason, that the GST Law identifies composite supplies and mixed supplies and provides certainty in respect of tax treatment under GST for such supplies.

[Ganeshan Kalyani]

Under GST, a composite supply would mean a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply:

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

[Ganeshan Kalyani]

The rule is – ‘If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’

[Ganeshan Kalyani]

Whether the services are bundled in the ordinary course of business, would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below :

• The perception of the consumer or the service receiver – If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business.

• Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.

• The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business

[Ganeshan Kalyani]

• Other illustrative indicators, not determinative but indicative of bundling of servicesin the ordinary course of business are:

-There is a single price or the customer pays the same amount, no matter how much package they actually receive or use

– The elements are normally advertised as a package

– The different elements are not available separately

– The different elements are integral to one overall supply. If one or more is removed, the nature of the supply would be affected

[Ganeshan Kalyani]

No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above.

[Ganeshan Kalyani]

Under GST, a mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply:

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

[Ganeshan Kalyani]

In order to identify if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply.

The following illustration given in the Education Guide of CBEC referred above can be a pointer towards a mixed supply of services: A house is given on rent one floor of which is to be used as residence and the other for housing a printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case, renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property.

[Ganeshan Kalyani]

The tax liability on a composite or a mixed supply shall be determined in the following manner:

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

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

[Ganeshan Kalyani]

Assessment in GST is mainly focused on self-assessment by the taxpayers themselves. Every taxpayer is required to self-assess the taxes payable and furnish a return for each tax period i.e. the period for which return is required to be filed. The compliance verification is done by the department through scrutiny of returns,
audit and/or investigation. Thus the compliance verification is to be done through documentary checks rather than physical controls. This requires certain obligations to be cast on the taxpayer for keeping and maintaining accounts and records.

AI Summary

Goods and Services Tax consolidation creates a dual GST framework with GST Council oversight and a shared IT platform for compliance.
Goods and Services Tax establishes a destination based, dual tax framework subsuming central and state indirect levies, administered through a GST Council and implemented via a shared IT platform (GSTN). The model law sets out registration and return regimes, HSN/SAC classification by turnover bands, input tax credit carry forward, composition and reverse charge rules, refund and valuation procedures, compensation to states during transition, and institutional arrangements for cross empowerment, adjudication and dispute resolution.