g s t - icmai-wirc.in. s. t. rates and case study of chemical & lubricants industry. ... itc...

G S T

Goods and Services Tax

In India: A New Journey

INDIRECT TAX SERVICES TEAM

G. S. T. Implications

Role Play For Cost Accountant

➢ Need to know common Neety Greeties.

➢ New Indirect Tax Reforms admired by IMF

➢ Constitutional Body in Controlling chair

➢ Automated / Auto Populated Tax Administration

➢ Eye to Eye Contacts minimized.

➢ Procedural hurdles minimized.

Role Play For Cost Accountant…contd

➢ Cost Accountants are part of Implementation Process.

➢ Certification Authority.

➢ Annual Return to be counter signed by Cost Accountants as well.

➢ Cost Accountant must understand the Process.

➢ Need to study few Important Returns, Supply Rules,Valuation Rules & Cenvat Credit Rules.

Taxes to be Merged / Not to be Merged in GST

Taxes to be merged➢ Central Taxes / Duties- in CGST• Excise Duty• CVD• SAD• Service Tax• CST• Surcharges & Cesses

➢ State Taxes – in SGST• VAT• Entry Tax / Octroi• State Cess / surcharges

* Note: Similar Merger will take place in UTGST

Taxes not to be merged

➢ Central Taxes / Duties

• Basic Customs Duty

• Export Duties

• R&D Cess

➢ State Taxes• Stamp Duties

• Electricity Duty

• Taxes on professions, trades andEmployments

G. S. T. Rates and Case Study of Chemical & Lubricants Industry.

Chapter no

Description Rates

Nil 5% 12% 18% 28%

27 Lubricant

28 Inorganic chemicals

29 organic chemicals

30 Pharma Products

31 Fertilizers

32 Dyes & Colours etc

33 Cosmetic & toilet preparations

34 Lubricants, soap etc

38 Misc. Chemical NES

➢ Need to study and confirm chapterwise classification tofix GST Rate

➢ Job Work Activities in both Industrial Sectors.

➢ Environment / Pollution Control Cost to be considered

➢ Procurement / Sourcing / Distribution & Logistics to be revisited

➢ B to B and B to C Modules needs revision

➢ Annual Supply Contracts, Indents, Tenders and Bids to be re examined to be GST Compliant

➢ Discounts, Bonus, Sales Promotion and Sales Incentives requires Brain storming

➢ Valuation of supply needs urgent attention.➢ Free samples, trade samples and supply to Related or

Distinct Persons free of cost should be examined.

➢ Denial of Credit on Inputs and services relating to Exempted Goods should be capped in Cost

➢ CSR Activities - Purchase of Goods or Services and use thereof for “ Other than for furtherance of Business” to be considered.

➢ GST Effects on Mergers, Amalgamations and Demergers with the help of Due Diligence Reports needs close scrutiny.

Role of GST Council

➢ Threshold Limit – 20 Lacs / 10 Lacs

➢ Composition Levy – Limit 50 Lacs

➢ Conversion of Area Based Exemption scheme into Refund based exemption

➢ Tax Rates announced.

➢ J&K will have their own GST Act & Rules.

HS Code & SAC

➢ GST Tax Rate related to HS Code

➢ GST Tax Rate Related to SAC

➢ Commodity wise HS Codes require some amendments.

➢ Service wise SAC requires closer study.

Supply: Meaning and scope

Supplies made without consideration - Schedule I

Determining what is to be treated as goods / services - Schedule II

Activities or Transactions neither Supply of goods nor services- Schedule III

i. All forms of supply of goods and/or services to be made for considerationby a person in the course or furtherance of business

ii. and importation of service whether in the course or furtherance ofbusiness or not ; and covers:

Section 7 deals with the concept of Supply and means:

When to Tax???Particulars Goods Services

ContinuousSupply

i. Successive statement of accounts/payments Date of expiry of successive statements of accounts or successive payments

ii. If no successive payments - earlier of:a. Date of invoice or b. Date of receipt of

payment

i. where due date of payment is ascertainable from contract: Due Date of payment by receiver, irrespective of whether or not any invoice has been issued; or payment received or not

ii. where due date of payment is not ascertainable from contract: date on which supplier receives payment or issues invoice, whichever is earlier

iii. Where payment is linked to completion of event: Time of completion of event

Time of supply: if supply before change in rate of tax

a. Where invoice has been issued and payment is also received before change, the date of receipt of payment or date of issue of invoice, whichever is earlier;

b. Where invoice has been issued prior to change but payment is received after such change, the date of issue of invoice;

c. Where payment is received before change, but invoice issued after such change, the date of receipt of payment

If supply is made before change in rate of tax, time of supply shall be:

Time of supply: If supply after change in rate of tax

a. Where payment received after change, but invoice issued prior to change, the date of receipt of payment;

b. Where invoice has been issued and payment is received after change, date of receipt of payment or the date of issue of invoice, whichever is earlier;

c. Where invoice has been issued after change, payment is received before change, the date of issue of invoice

If supply is made after change in rate of tax, time of supply shall be:

COMPOSITE SUPPLY Two or more Taxable Goods and or Services or combination thereof Naturally bundled and supplied in conjunction as ordinary Business Practice One of the Goods and or Service must be Principal supply

➢ Example :

Taxable Goods duly Packed and Insured during Transit and Transported in which Goods is a Principal Supply.

MIXED SUPPLY Two or more Individual Goods or Services or any combination thereof Supplied in conjunction with each other for a single price. It is not a composite supply.

➢Example :

Gift Parcel containing Dry Fruits, Juices, Chocolates, Aerated Drinks etc. for One Price Tag . Each Goods are not dependant on each other.

TAX Liability for Composite / Mixed Supply

Composite Supply the Value for the Tax will be that of Principal Goods.

Tax Authorities shall always include Value of Other Goods and or Services comprising the Composite Supply.

Mixed SupplyThe Goods which attracts the Higher Rate of Tax.In a Gift Parcel Example above if Dry Fruits attracts say 28% G S T the entire Value of such Gift Parcel will be taxed at 28%.

Tax Invoice Under GSTA Tax Invoice to be issued under GST by the supplier should contain the followinginformation:• Name, Address and GSTIN of the Supplier• Invoice Number containing alphabets and / or numbers• Date of Invoice• Name , Address and GSTIN / UIN number recipient• HSN Code of goods or Accounting code of Services• Description of Goods or Services• Quantity in case of Goods and unit• Total value of goods or services• Taxable value of Goods or services taking into account discount or abatement• Rate of Tax ( CGST, SGST/UGST or IGST)• Amount of Tax charged in respect of taxable goods or services• Place of supply along with the name of State, in case of supply in the course of

inter-state trade or commerce• Place of delivery where the same is different from Place of supply• Whether the tax is payable on RCM• Signature or Digital Signature of the supplier or his authorized representative• Similar Rules apply for Supply Invoice

ITC – Allowed , Restrictions, Not Allowed

ITC can be claimed on

Restrictions Exclusion

Input tax creditKey Conditions for Credit Availment

Receipt of Goods / Services

Tax Invoice is available

Uploading of supply details on GSTIN website by Supplier

Payment of tax in Govt Treasury and filing of Returns by Supplier

Payment of consideration to vendor within 180 days from the date of issue of Invoice by supplier

Used in course of or furtherance of business

Utilization of Input Tax Credit

INPUT OUTPUT

CGST CGST - IGST

SGST SGST- IGST

CGST / SGST SGST / CGST

IGST IGST - CGST-SGST

√

√

×√

SGST of one State SGST of another State ×

CGST + SGST paid in another state , whether set-off can be claimed in Maharashtra ?

Related Persons

“Related persons” are explained in GST law and they are deemed to be as under:- Officers / Directors of one another’s business- Partners in business- Employer – employee- A person directly/ indirectly owns/ controls/ holds 25 of

shares of both the persons- One directly/ indirectly controls the other- Both are directly/ indirectly controlled by a third person

- Together, they directly/ indirectly control a third person- Members of the same family- Sole agent / distributor of the other

Distinct Persons

Distinct Persons as referred in Schedule-I aredefined under the Act:

- Two or more registrations (for each businessvertical within the same State) shall be treated asdistinct persons in respect of such registrations.

- Registration in a State: An establishment in suchState and establishments in other States shall betreated as distinct persons.

Transaction ValueWhen value of supply cannot be determined: When the supplier andrecipient are not related and price is the sole consideration of supply butvalue cannot be determined then:

(a) Open market value; or

(b) if open market value is not available, be the sum total of consideration inmoney and any such further amount in money as is equivalent to theconsideration not in money if such amount is known at the time of supply;

(c ) if the value of supply is not determinable as above, the value of supply ofgoods or services or both shall be of like kind and quality;

(d) if value on none of the above bases is determinable, then it shall be thesum total of consideration in money and such further amount in money thatis equivalent to consideration not in money , to be determined as under:

i. 110% of the cost of production or manufacture or cost of acquisition ofsuch goods or cost of provision of such services; or

ii. the same shall be determined using reasonable means consistent with theprinciples and general provisions ;

NB: In case of supply of services, the supplier may opt this rule referred in (ii)above , disregarding the rule in (i)

GST RETURN

Type of return/Form

Section under Act.

Applicability Periodicity Due Date

GSTR 1 Sec 37 Registered/Regular Taxpayer

Monthly 10th of the next month





GSTR 4 Sec 10 Registered/Composite Taxpayer

Quarterly 18th of the month next to the quarter

GSTR 5 Sec 27 Non-Resident/Foreign Taxpayer

i) within 20 days after the end of a tax period orii) within 7 days after expiry of registrationwhichever is earlier

GSTR 6 Sec 20 Input Service Distributor (ISD)


Type of return/Form

Section under Act.

Applicability Periodicity Due Date

GSTR 7 Sec 51 Taxpayer who has Deducted Tax at Source


GSTR 8 Sec 52 E Commerce operator Monthly 10th of the next month

GSTR 9 Sec 44 Regular Taxpayer Annual 31st December of Next FY

GSTR 9A Sec 10 & Sec 44

Compounded Dealer Annual 31st December of Next FY

GSTR 9B Sec 44 & Sec 35

Regular Taxpayer turnover exceeding prescribed turnover.

Annual 31st December of Next FY

GSTR 10 Sec 45 Regular Taxpayer (Final Return)

i) 3 months from date of cancellationii) Order of cancellationWhichever is later

GSTR 1Details to be furnished, Data to be accessed :- Outward supplies including Interstate Supplies, Goods Return, Exports,

Debit or Credit notes and supplementary invoices.

Data to be accessed from Outward Supply Register.

Unmatched amount from GSTR 1A will be added to liability in GSTR 1,

wherever applicable.

GSTR 1A

Auto Populated for corrections from GSTR 2 (under sec 38) and GSTR 4 (under sec sec 39)

Acceptance/ Rejection Option is with the supplier of taxable supply as per section 37 from 15th to 17th of the following month to which the GSTR-1 relates.

The transactions thus accepted / rejected in Form MIS-3 will amend the uploaded GSTR 1.

GSTR 2Details to be furnished, Data to be accessed :- Inward supplies received by the tax payer from Inward supply of goods register

or inward supply of services register, debit or credit notes, etc.

Comparison to be done between GSTR 2 and GSTR 2A and pick out unmatched amount to be resolved.

Dealer should keep supporting documents on record as stated in Input Credit Rules such as GRN, Invoice Copy.

GSTR 2A

Auto populated Inward Supplies based on GSTR 1 filed by Suppliers (Part A), GSTR 6 filed by ISD (Part B), GSTR 7 filed for TDS ( Part C ), GSTR 8 filed by e commerce operator ( Part D)

Timely Action for any discrepancy to be taken.

Checking the MIS-4, available to recipient of supply.

GSTR 6

This return is for input service distributor (ISD) where details of only Inward supplies to be furnished e.g. ITC received, ITC distributed.

GSTR 6A will be auto populated for inward supplies from GSTR 1 filed by suppliers.

Comparison to be done between GSTR6 and GSTR6A and unmatched entries to be resolved.

GSTR 7

This return is for Tax Deducted at Source to be filed by taxpayer or registered dealer who has deducted tax at source.

Dealers have to check their internal records to whom/ if they have issued TDS certificates.

GSTR 9

This is an Annual return to be filed by Registered taxable person other than Input service distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non resident taxpayer.

It is the summary of outward and inward supplies for the financial year with reconciliation and audited accounts.

Compare the details of GSTR 3 Returns filed for full year and Balance Sheet for reconciliations.

GSTR 9B

This Annual return is to be filed by Registered taxable person other than Input service distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non resident taxpayer whose turnover during a financial year exceeds prescribed limit.

The dealer should furnish a copy of audited annual accounts and reconciliation statement duly certified by CA / ICWA.

Compare the details of GSTR 3 Returns and Audited Balance Sheet

This is GST Audit Report.

GST MIS-1 & GST MIS -2

Communication and rectification of discrepancy in claim of input tax credit by the Recipient, shall be made available to Recipient in Form GST MIS-1 and Supplier in Form GST MIS-2.

The claim of input tax credit can be in respect of any tax period.

GST MIS-1 is an auto populated form for final acceptance of claim of input tax credit by Recipient, after rectification, if any.

GST MIS-2 is an auto populated form for final acceptance of claim of input tax credit discrepancy, of Recipient, by Supplier, after rectification, if any.

Where the discrepancy is not rectified, an amount to the extent of discrepancy shall be added to the output tax liability of the Recipient in his return to be furnished in FORM GSTR-3 for the month succeeding the month in which the discrepancy is made available.

GST MIS-3 & GST MIS -4

Communication and rectification of discrepancy in claim of output tax by Supplier, shall be made available to Supplier in Form GST MIS-3 and Recipient in Form GST MIS-4.

The claim of input tax credit can be in respect of any tax period.

GST MIS-3 is an auto populated form for final acceptance of claim of input tax credit by Supplier, after rectification, if any.

GST MIS-4 is an auto populated form for final acceptance of claim of input tax credit discrepancy, of Recipient, by Recipient, after rectification, if any.

Where the discrepancy is not rectified, an amount to the extent of discrepancy shall be added to the output tax liability of the Supplier and debited to tax liability register and also shown in his return in FORM GSTR-3 for the month succeeding the month in which the discrepancy is made available.

Accounting and Records Every registered person shall keep the books of account at the principal place

of business and at every related place(s) of business mentioned in his certificate of registration and such books of account shall include any electronic form of data stored on any electronic device.

Every registered person manufacturing goods shall maintain:

• Monthly production accounts,

• Monthly quantitative details of raw materials or services used in the manufacture

• Quantitative details of the goods manufactured

• Quantitative details of waste and by products.

Accounts maintained by the registered person 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 until the expiry of seventy-two months from the due date of furnishing of annual return for the year pertaining to such accounts and records. i.e. period of 6 years from 31st

December of succeeding FY.

❖ Prepare List of all Business Locations, Registrationsunder various Local and Central Laws and Rules,Correct Address with PIN Code Numbers.

❖ Prepare List of all Lease Deeds, Rent Agreements, Contracts/Agreements, MOUs, Undertaking, Bonds, Bank Guarantees, LOIs, Loans Documents if any, Advances Received and Paid Outward.

Transition Management

❖ Prepare List of Pending Purchase and Sale Orders,Supply / Rate Contracts, Bids, Tenders, PricingAgreements, Discounts and Other Sales PromotionSchemes, Gift Coupons , Periodical Price Circulars.

❖ Prepare List of all Sale, Purchase Invoices, ExportDocuments, Import Documents, Delivery Challans,Internal Accounting Documents for Samples,Credit Notes and Debit Notes, SupplementaryInvoices. Prepare Master Folder with all Details &Documents.

❖ Complete all Initial Registration formalities forProvisional I D and Submission of supportingDocuments.

❖ Include all your Business Locations ---Manufacturing, Ware Houses, Job Workers, C& Fs,Depots, Selling Locations in G S T Registration.

❖ Revisit All Accounting Codes for Credit Mechanism,Payment of Taxes, Up to 30th June 2017 and After1st July 2017.

❖ Open separate Current Account for Taxes Collected,Credit Earned and Taxes Paid during the ReturnPeriod and carry out Reconciliation before Return.

❖ Allot separate Accounting Codes / Practices forAdvances Given and Received and Install AdvanceTracker including Tax Effects.

❖ Study and compare New HSN Codes with yourProduct Description -- Purchases, Sales, Import,Exports etc.

❖ Develop Formats for I S D Invoice, Credit Note,Debit Note, Delivery Challan, R C M Invoice,Transporter’s Invoice and Export Invoice andInstall on the System.

❖ Update Vendor Master with details such as Full Name, Address, PAN No., Excise , Service Tax, VAT, CST Registration No.in each State / UT, complete address of each Business Locations / Warehouse and GST Registration details. (Copies of Registration should be called for). Cross Verified from GST Side before fortifying in your system. Run Mock Drill and obtain confirmation from Sourcing Department.

❖ Customer Master with details such as Full Name, Address,

PAN No., Excise , Service Tax, VAT, CST Registration No. in

each State / UT, complete address of each Business Locations

/ Warehouse and GST Registration details.

❖ (Copies of Registration should be called for). Cross Verified from GST Side before fortifying in your system. Run Mock rill and obtain confirmation from Marketing/Sales/Logistics department.

❖ Stock Taking and Reports should be BusinessLocation wise and wherever possible third partystock checking should be carried out. Usualsystem of Stock Taking should be avoided.Reconciliation with Returns filed must be carriedout. CA Certification of Stock Taking Reportsmust.

❖ Stock Balances carried forward in the NewRegime should be near accurate and properlytallied and reconciled with Books and Returns.

❖ Prepare list of pending Statutory Declarations (F /C / E1 / E2 / H / I Forms ) to be issued and to bereceived upto 30th June 2017.

IMPACT ANALYSIS

Impact on Cashflow

➢ Planning for Cash flow adjustment & inventory cost is important as GST would be

paid at the time of Supply

➢ A). INVENTORY

• Scenario under GST

– Branch Transfers will be treated as “Supply”.

– Transfer will attract full rate of GST to be paid to Government.

– GST paid on transfer can be treated as ITC only upon further supply made.

– Hence to the extent of GST paid (net of ED), on goods held in stock, working capital will be blocked.

– Hence need to hold minimum inventory level at Depots & with Agents.

Impact on Cashflow…contd.

➢ B). RCM – Purchases from Unregistered Dealers

• Registered Person to pay GST at applicable rate on such purchases under Reverse Charge Mechanism Basis (RCM).

• Such GST paid (RCM) is eligible as ITC

• Unregistered Dealer purchases will be Costlier as he will not claim ITC on Inputs, Hence his products / services will be costlier.

• RCM payable on higher amount resulting in additional cash outflow.

• Credit delayed

Impact on Cashflow… contd.

➢D) Advances Received/Paid

– Under GST if advance received, the supplierreceiving advances has to pay appropriate GST.

➢E) Payment within specified period

– If consideration not paid for Goods/Services within 180 Days of invoice ITC will have to be reversed with interest.

Anti Profiteering Measure (U/s 171)

• GST is expected increase Input Credit availability due to –– Reduction in Rate of GST (compared to ED+VAT+LBT+

octroi+Ent. Tax etc.). – Increase in Scope of Benefit of input tax credit (e.g. ITC

now available on interstate purchases/transfers)

• Increased benefits to be passed on to customers by way of reduction in prices.

• Government to form appropriate Authority/Forum to monitor the price reduction in concerned cases.

• Taxable person required to carry out revised product costing, with benefit to the passed on.

Evaluation of Procurement strategy

• Increased Scope of Input Tax Credit (ITC), it will reduce input cost of Goods & Services supplied. Earlier ITC available “In & In relation to Mfg”, NOW “used in the Furtherance of Business” (e.g. in GST -ITC is available on Purchase of Office Eq.)

• This will impact final product/service pricing • Proper re-negotiation of Prices with Vendors in view of revised Credit & Tax under

GST.• Anti Profiteering Measures expects passing on of these benefit to customers.

• Re-model Supply flow –Inter-state vs Intra-State, Supplier/Plant combination of procurements could also prove viable, opening up of opportunities to consolidate Suppliers/Vendors.

• Delay purchases of currently non-centvatable items, post GST regime.(e.g Office Eq./Office Computers)

• This will result in lower cost to next chain manufacturers.

• Restrict Procurement from Unregistered/Composite Scheme Dealers.

• Unregistered /Composition scheme beneficiaries can be induced to get registered under GST for –– They can take ITC benefits.– Composition tax payable without recovery from customers, hence their pricing will be higher.

Review Business Process/Supply Chain

➢ The GST is new law and Business process is old, time tested& designed as per existing laws to get maximum benefits. There is need to change to business process /Marketing strategy to adapt to Changing Horizon of GST. Needs critical review of each & every business process keeping GST in consideration.o Review Local vs Interstate supplies

o Review Sales Policy, various Discount Structures

o Need review of Pricing Policy, keeping in mind anti-profiteering clause.

o Free samples to customers not subject to GST – but ITC to be reversed , Free samples to related person subject to GST. Gift by employer to employee above Rs. 50k is subject to GST

➢ Supply Chain/Logisticso Evaluate /Realignment of the distribution strategy considering One Tax (GST) based on

destination, rather than Tax disparity in despatch from different States /locations.

o Review the Distribution Network- Depot, Warehouse locations/C&F arrangements and service levels of inventory.

o Review critically Place of Business & Supply of goods / services, taking into consideration Registration Provisions, so that where places where Registration is required in minimized & thereby reducing unnecessary compliance burden.

Review- Manufacturing Policy

➢ Review Operating Locations /Plant Locations.

o Assess relevance of operating at current sites vs.re-distribution of Manufacturing policy across locations.

o Revisit capex Projects for new Locations – for viability in view of GST. Is the new projects should be taken up OR can it be done with modification?

o Review of Job work or ancillary operations, consideringo Every movement of good in & out is governed by GST Rules.

o Review every movement of goods at various stages & its necessity.

o Time limits for returning good & its implications on non-complinace.

o Review contracts & re-negotiate wherever required.

Accounting Process Under GST

➢ Review Accounting process of GST -o GST Registration is separate for each STATE

o Change in Chart of Account to have new Ledgers for - SGST, CGST, IGST balances- for Input/output tax. Also Payment ledgers for each these type of Taxes - State-wise

o Updating various Master Data files-Customers/Suppliers/Relevant Tax codes/Rates.

o Re-defining Accounting Policies to take effect of change in tax structure, like-

Advance received- attracts under GST. Therefore, its control & accounting also needs review.

o Inventory Accounting needs to be strengthened, so that there is no issue in taking ITC, which is based on receipt of good & services

T H A N K Y O U