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]

Key points that are significant from the perspective of maintenance of accounts and records are:

1. Section 35 of the CGST Act and “Accounts and Records” Rules (hereinafter referred to as rules) provide that every registered person shall keep and maintain all records at his principal place of business. It has cast the responsibility on the owner or operator of warehouse or godown or any other place used for storage of goods and on every transporter to maintain specified records.

The section also empowers the Commissioner to notify a class of taxable persons to maintain additional accounts or documents for specified purpose or to maintain accounts in other prescribed manner.

It also provides that every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant.

[Ganeshan Kalyani]

2. Every registered person is required to maintain true and correct account of following:
(a) production or manufacture of goods

(b) inward and outward supply of goods or services or both

(c) stock of goods

(d) input tax credit availed

(e) output tax payable and paid and

(f) such other particulars as may be prescribed

(g) goods or services imported or exported or

(h) supplies attracting payment of tax on reverse charge along with the relevant documents, including invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers, refund vouchers and e-way bills

The aforementioned list is on a macro level and what needs to be stored on ground level as part of the list is given below:

(a) accounts of stock in respect of goods received and supplied; and such account shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and balance of stock including raw materials, finished goods, scrap and wastage thereof

(b) a separate account of advances received, paid and adjustments made thereto

(c) an account containing the details of tax payable, tax collected and paid, input tax, input tax credit
claimed together with a register of tax invoice, credit note, debit note, delivery challan issued or received during any tax period

(d) names and complete addresses of suppliers from whom goods or services chargeable to tax under the Act, have been received

(e) names and complete addresses of the persons to whom supplies have been made

(f) the complete addresses of the premises where the goods are stored including goods stored during transit along with the particulars of the stock stored therein

(g) monthly production accounts showing the quantitative details of raw materials or services used in the manufacture and quantitative details of the goods so manufactured including the waste and by products thereof

(h) accounts showing the quantitative details of goods used in the provision of services, details of input services utilised and the services supplied

(i) separate accounts for works contract showing:
• the names and addresses of the persons on whose behalf the works contract is executed
• description, value and quantity (wherever applicable) of goods or services received for the execution of works contract
• description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract
• the details of payment received in respect of each works contract and
• the names and addresses of suppliers from whom he has received goods or services

[Ganeshan Kalyani]

3. In case more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business. If records can be maintained electronically and access to such records is at each place of business, no requirement to maintain hard copy records at each place of business.

[Ganeshan Kalyani]

4. If records are maintained electronically, following requirements have been prescribed:

(a) data so stored shall be authenticated by way of digital signature

(b) proper back-up of records

(c) produce, on demand, the relevant records or documents, duly authenticated, in hard copy or in any electronically readable format

[Ganeshan Kalyani]

5. Any entry in registers, accounts and documents shall not be erased, effaced or overwritten and all incorrect entries, other than those of clerical nature, shall be scored out under attestation and thereafter the correct entry shall be recorded and where the registers and other documents are maintained electronically, a log of every entry edited or deleted shall be maintained.

Further each volume of books of account maintained manually by the registered person shall be serially numbered

[Ganeshan Kalyani]

6. Period for preservation of accounts: All accounts maintained together with all invoices, bills of supply, credit and debit notes, and delivery challans relating to stocks, deliveries, inward supply and outward supply shall be preserved for 6 years from the due date of furnishing of annual return for the year pertaining to such accounts and records.

[Ganeshan Kalyani]

7. Records to be maintained by owner or operator of godown or warehouse and transporters: The transporters, owners or operators of godowns, if not already registered under the GST Act(s), shall submit the details regarding their business electronically on the Common Portal in FORM GST ENR-01. A unique enrolment number shall be generated and communicated to them. A person in any other State or Union territory shall be deemed to be enrolled in the State or Union Territory.

[Ganeshan Kalyani]

The GST Act defines an Agent as a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.

[Ganeshan Kalyani]

So, who is a pure agent and why is a pure agent relevant under GST? Broadly speaking, a pure agent is one who while making a supplyto the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply. While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is that of a pure agent.

[Ganeshan Kalyani]

Let’s understand the concept by taking an example:

A is an importer and B is a Custom Broker. A approaches B for customs clearance work in respect of an import consignment.The clearance of import consignment and delivery of the consignment to A would also require taking service of a transporter.So A, also authorises B, to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actuals. In the given illustration, B is providing Customs Brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form part of value of Customs Broker service provided by B to A.This, in sum and substance is the relevance of the pure agent concept in GST.

[Ganeshan Kalyani]

RELEVANCE OF PURE AGENT UNDER GST

The concept is borrowed from the erstwhile Service Tax Determination of Value Rules, 2006 and carried forward under GST. Under the GST Valuation Rules 2017, a pure agent is given the following meanings.

A “pure agent” means a person who: (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply

[Ganeshan Kalyani]

(c) does not use for his own interest such goods or services so procured

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for the supply he provides on his own account

The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract.In the illustration of Importer and Customs Broker given above, assuming that the contract was for clearance of goods and delivery to the Importer at the price agreed upon in the contract.In such case, the Customs Broker would be using the transport service for his own interest (as the agreement requires him to deliver the goods at the importers place) and thus would not be considered as a pure agent for the services of transport procured.

[Ganeshan Kalyani]

Another important fact is that, the person who provides any service as a pure agent receives only the actual amount for the services provided. Coming back to our example of Importer and Customs Broker, the agreement provides reimbursement of transport services utilized at actual. In this case, let’s say the value of transport service was ₹ 10,000/-.If the Customs Broker charges any amount more than ₹ 10,000/-, then he will not be considered as a pure agent for the services of transport and the value of transport service will be included in the value of his Customs Broker service.

EXCLUSION FROM VALUE

Expenditure incurred as pure agent becomes relevant, when it comes to determining the value of a supply for levy of GST. The preceding para explains who will be considered as a pure agent.The valuation rules provide that expenditure incurred as pure agent, will be excluded from the value of supply, and thus also from aggregate turnover. However, such exclusion of expenditure incurred as pure agent is possible only and only if all the conditions required to be considered as a pure agent and further conditions stipulated in the rules are satisfied by the supplier in each case.

The supplier would have to satisfy the following conditions (in addition to the condition required to be satisfied to be considered as a pure agent)for exclusion from value: (i) The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party on authorization by such recipient (ii) The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service (iii) The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

The following illustration will make the concept clearer:

• Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B

• Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies

• The fees charged by the Registrar of the Companies registration and approval of the name are compulsorily levied on B

• A is merely acting as a pure agent in the payment of those fees.

• Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

CONCLUSION

A pure agent concept is an important one for businesses as it has direct implications on the value of taxable service. It has direct bearing on the amount of GST charged on a particular supply. It also has bearing on the aggregate turnover of the supplier and therefore on calculating the threshold limit for registration. Whenever the intention is to act as a pure agent, care should be taken to ensure that the conditions specified for such pure agents and further conditions given in the valuation rules are also met so that only the real value of the service provided is subjected to GST.

[Ganeshan Kalyani]

The concept is borrowed from the erstwhile Service Tax Determination of Value Rules, 2006 and carried forward under GST. Under the GST Valuation Rules 2017, a pure agent is given the following meanings.

A “pure agent” means a person who: (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both

neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply

(c) does not use for his own interest such goods or services so procured

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for the supply he provides on his own account

The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract.In the illustration of Importer and Customs Broker given above, assuming that the contract was for clearance of goods and delivery to the Importer at the price agreed upon in the contract.In such case, the Customs Broker would be using the transport service for his own interest (as the agreement requires him to deliver the goods at the importers place) and thus would not be considered as a pure agent for the services of transport procured.

[Ganeshan Kalyani]

It has been reported in a certain section of media that some unscrupulous elements posing as GST officers have tried to fleece the shopkeepers and customers in the name of GST. It is hereby clarified by the Office of the Chief Commissioner of GST (Delhi Zone) that the Department only wants to facilitate the shopkeepers and traders during the transition period.

No officer of the Department is authorized to visit the premises of the traders and shopkeepers without authorization. In case of any difficulty, complain at Phone no. 011-23370115, Central Revenue Building, I. P. Estate, New Delhi.

[Ganeshan Kalyani]

The Comptroller and Auditor General (CAG) has finalised an “End-to-End IT solution’’ to audit the Goods and Services Tax (GST). The proposal envisages a pilot programme on the GST audit which will be ready by October this year and, after two beta versions, a final stage of near real-time peer review, and a digital audit report by March 2019. CAG Shashi Kant Sharma told The Indian Express that with GST becoming a reality, they too are in a position to come out with an audit on a digital platform within one working financial year.

[Ganeshan Kalyani]

The GST digital audit, according to CAG officials, will create many firsts. It aims to leave a zero-paper trail and go completely paperless from day one with key features of the platform being a digitally-filed audit and real-time monitoring.

“Our idea is to create a data-driven platform for auditing the GST which is independent of time, place and person. Our State Auditor Generals are already interacting with state governments with requirements for the digital GST audit,” he said. Sharma will be in Bangalore next month to inaugurate the nodal centre of the CAG for the GST auditing process.

[Ganeshan Kalyani]

A data warehouse will be created by a security-cleared CAG team with data being collected from sources such as the GSTN, the Central Board of Excise and Customs and commercial taxes departments of all states and UTs.

[Ganeshan Kalyani]

Data will also be collected by the CAG from “third parties” such as the Income Tax department, urban municipalities and corporations, e-commerce, Airport Authority of India, Medical Council of India, agricultural marketing committees and other regulatory bodies.

[Ganeshan Kalyani]

According to the CAG proposal, information relating to audit observations raised in field inspection reports and, subsequently, draft paras prepared by GST audit officers will also be stored in the data warehouse and will be accessible to stakeholders after security clearance.

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.