GOODS AND SERVICE TAX (GST)

A TAX TRANFORMATION

PRESENTATION TO

SHRI ARUN JAITLEY

HON’BLE UNION MINISTER OF FINANCE,

DEFENCE & CORPORATE AFFAIRS

GOVERNMENT OF INDIA

BY

THE SOUTHERN INDIA CHAMBER OF COMMERCE

AND INDUSTRY

30TH JULY, 2017 CHENNAI

INDEX

Sl.

No. Sector Page No.

Introduction

1 Automotive 1

2 Areca Palm Leaf Products 2

3 Construction 3

4 Contraceptive 4

5 Elevator 5

6 Entertainment 7

7 Fertilizer 8

8 Flour Milling 10

9 Granite 11

10 Information Technology 12

11 Leather 14

12 Logistics 17

13 MSME 21

14 Paper & Paper Board 22

15 Pumps 23

16 Recycled Plastics 24

17 Restaurant 25

18 Safety Matches 26

19 Tractor & Accessories 27

20 Wet Grinders 28

21 Key Issues requires clarification 29

Congratulatory Note

Interactive Meeting

with

Shri Arun Jaitley

Hon’ble Union Minister of Finance

INTRODUCTION

The Southern India Chamber of Commerce & Industry (SICCI) has crossed a century of serving

the Trade & Industry and is one of the premium organizations projecting the cause of the economy

of the nation. SICCI is the founder of FICCI New Delhi. All the Past Presidents of FICCI from the

south are being nominated by this chamber. Leading industrialists are in the board of SICCI

SICCI is proud to be associated with the first of its kind post GST interactive session with the

Hon’ble Finance Minister.

We are indeed glad that the country is governed by visionaries – Hon’ble Prime Minister Shri

Narendra Modi, the Finance Minister and a host of other highly able Minsters.

Post-independence, there has been two mega / most significant revolutionary vision statements of

the country both focused for economic prosperity – one on infrastructure and the other for

taxation.

Two greatest / most significant transformations of the country:

1. Golden Quadrilateral and

2. Goods and Service Tax

Golden Quadrilateral – commenced by Shri Atal Bihari Vajpayee then Prime Minister in Jan

1999, it changed the complexion of the infrastructure of the country. It converted the connectivity

in to –

One Nation One Road.

Goods & Service Tax - To implement such a policy initiative in country of this size, an economy

of this magnitude with diversified political character needs courage and vision – both are available

the PM and the FM. A tax reform that transforms the country to:

One Nation, One Tax, One Market.

The common denominator for both mega achievements is Nation building – that too one Nation.

We in SICCI are indeed proud of being a part of the historical and marks and to have the privilege

of co-hosting this event for the first time in the country.

On a request to our Members to share their views, while there was a general appreciation of the

tax reforms across the board, inputs are attached as a sectorial compilation of concerns as expressed

by them which SICCI is confident will receive the attention that it deserves.

Sector: I Automotive Sl. No Concern shared

1 Leasing of Vehicle – GST Rates at par with GST rates that apply for supply of vehicles.

Typically, 43% on leasing charges is heavy burden with no certainty on Credits related to

such cases.

2 Employee related credits - GST law conceptually contemplated seamless credit

mechanism. However, still there is no clarity on employee related credits such as cab rental

etc.

3 Transition stock benefit for Duty paid vehicles - Many times, Ex. Duty has to be paid on

removal for testing to ARAI etc. and such vehicles lying in stock at the point of transition is

capable of being sold in GST regime. However, this would have double duty impact, if

GST credit on opening stock of FG is not allowed. There is no such provision.

4 After Sales Service & Warranty - Industry position is taken since legal position gives room

for enough interpretation. This is being treated as composite contract and separately GST is

considered for material and labour portion respectively.

5 Tooling amortsation and FoC stock lying with vendors - This is also open for

deliberations.

Sector: II Areca Palm Leaf Products Sl.

No

Concern shared

1 This product is 0 classified under HS code 46021919 and being taxable at 12% in the present

GST. Under VAT Act this product is exempted with Commodity Code of 524.

2 The Areca Nut Palm leaves product mostly are made by women Self Help Group and the

margin and trading are very low, but very useful for environment.

Areca leaf plate is Natural, Bio-degradable, Eco friendly and will contribute pollution free

world. It is manufactured by un-organized sector as small cottage industry and this product is

also an alternative to plastic materials.

3 Suggestion: The industry requests the Government to kindly consider and grant exemption to

this Eco-friendly product under GST regime.

Sector: III Construction Sl. No Concern shared

1 Operating lease: The interstate movement of the leased assets is liable to GST. The leased

assets are possessed & controlled by the lessee. The challenge is who is liable for the

payment of tax on movement of the leased assets from one state to another state. Lessor

will pay GST on the lease rental under IGST. Whether the movement of assets from one

state to another is taxable? If so who has to pay the IGST? On what value?

2 Transacting with unregistered dealer: The tax is liable under RCM and whether all the tax

paid under Reverse Charge basis can it taken as ITC for all cases?

3 For execution of projects contract provides for separate schedule for supply of goods and

separate schedule for erection & commissioning. Clients’ contracts condition provides for

payments term for supply of goods is as under:

10% advance along with the contract

70% on receipt of materials

10% on completion of erection & Commissioning

5% on Pre-Acceptance certificate

5% on Final completion & handing over.

Pre GST regime the supply Invoice will not attract VAT as covered under E1 sale

exemption under CST Act. Post GST this transaction will attract GST.

In the above circumstances whether GST to be raised for the percentage as agreed in the

contract payment terms? Or on the 100% value of supply of goods?

As the payment is staggered for more than one year the question of reversal may also attract

if invoice is raised for 100%.

Sector: IV Contraceptive Sl. No Concern shared

1 Male Contraceptives are grouped under 0% tax rate and hence there is no output tax for this

product.

However, there are increases in the input raw materials cost due to increase in GST rate vs

the earlier ED + VAT rate.

a. Natural Rubber Latex – from 2% VAT to 5% GST

b. Silicone Oil from 14.5% (ED +VAT) to 18% GST

c. Foil from 14.5% (ED & VAT) to 18% GST

Unfortunately, due to non-availability of Input Tax Credit (ITC) for exempted products the

cost of production is increasing and thus may result in increase in cost of the end product to

customer.

It is suggested to have nominal output tax rate for Contraceptives thus enabling the

manufacturer to availing the input tax credit and pass on those benefits to the ultimate

customer instead of increasing the final price to the customer.

2 Since there are increases in input raw material cost due to non-availability of Input Tax

Credit for Contraceptives there is an increase in production cost. This will necessitate

increase in final price of the product.

3 Suggested Relief: Need to have a provision for availing input tax refund for the taxes paid

in inputs to avoid increase in product cost.

4 Unable to register for Input Service Distributor (ISD) in spite of repeated attempts from the

last week of June 2017.

Sector: V Elevator Sl. No Concern shared

1 During implementation of GST, the elevator industry is facing certain practical

difficulties with regard to credits that have to be passed on to the customers. While

the intention is understood, the present law does not contain suitable provisions.

Difficulties faced by the elevator industry are enumerated for remedial action /

solution.

2 There is a certainty post implementation of GST but difficulty is mainly on the

transition provisions. In the elevator industry the projects are normally spread over a

period of year or more as it involves design, manufacture, supply and installation.

These activities also depend upon progress of the civil constructions where these are

to be installed.

3 Prior to GST, the activity of supply and installation of elevator was treated as a works

contract and accordingly output tax was paid. For these transactions, VAT and service

tax were applicable. Since Elevator is an immovable property, there was no excise

duty leviable.

4 Elevator consists of two broad categories of components. About 50% of the

components are manufactured in the factory on which excise duty was paid on self-

consumption and remaining 50% represented bought out components which were

taken to sites for installation.

5 As elevator is transferred to the end customer as an immovable property, excise

duty was not levied on output whereas the manufactured input and bought out input

suffered excise duty.

Under the GST Act, the transition provision under Section 140(1) allows CENVAT

credit to be carried forward to GST, there is no express provision to take credit

of excise duty paid and cleared by us on self-consumption basis which are available

in work sites under our control and also for the bought out components taken to sites

which have also suffered excise duty.

6 While Section 140(3) of the GST Act enables credit to be taken by certain categories

of registered persons, the same does not cover the category of persons registered under

the existing laws prior to GST. While it is a fact that manufactured components and

bought out components have suffered excise duty, there is no enabling provision to

take credit of such duties for passing on to customers. Our intention is to pass on the

credit, but we are unable to take the credit for subsequently pass it on to the

customers. Now customers are demanding that the excise duty paid / involved in such

components be passed on to them. In the absence of suitable provisions customers are

being burdened with incremental tax impact on account of GST.

7 While Section 140(3) has included the works contractors availing the benefits under

notification 26/2012, the same benefit has not been extended to the works contractors

covered under Rule 2A of Service Tax (Determination of Value) Rules 2006. We also

wish to bring to your kind attention that such components not only suffer excise duty

but also entry tax in States wherever applicable. In the absence of enabling provisions,

both these tax elements already included in the inputs could not be passed on resulting

in dual taxation burdening the end customers. Our customers have already started

raising their concern on increased tax incidence.

8 Suggested Relief: Consider the difficulties faced by the industry and give suitable

directions for enabling to avail the benefits and pass it on to end

customers. While GST is a great step forward for the country and industry we

will learn the finer points as we move along. It's important that the end users get

the clarity and the benefits.

Sector: VI Entertainment Sl. No Concern shared

1 Production of film attracts 18% of GST on all services used like Services of actors,

directors, music directors, Music Studios, Post production studios, marketing

agencies, Work for the hire production services, etc.

2 After the completion of the said film, and when the producer sells the film on

copyright basis, gets only 12% on the sale of copy Rights. So there is a wide gap of

6% between the input and output credit. Also the Producer has to pay the 18% GST

on every payment from starting of the film, which involves the huge amount of cash

flow for the producer.

3 Most of the Indian producers do not get bank credit and as a result of it they have to

seek only the private funding at a very high rate of interest and the sale of copyright

takes place only after completion of the film.

4 Since the percentage of success is only 10%, the producers’ money gets blocked up

in the coffins of Government in the form of GST, which could be adjusted by the

producer only in his future films.

Suggested Relief: Reduce the GST rate as output tax of 18% to 12% on par with

already mandated 12% of input tax and oblige.

Sector: VII Fertilizer Sl.

No

Concern shared

1 With the reduction of Fertilizer GST rates from proposed 12% to 5%, benefit on account of

input duty reduction have been passed on by the Industry to the farming community -

Downward revision in MRP of Fertilizers from 1st July onwards.

2 Notified GST rate on inputs viz Phosphoric Acid, Ammonia and Sulphur continues to remain

at 18%, resulting in inverted duty structure and high credit accumulation for the domestic

manufacturing industry (~Rs 4000/ ton for DAP) – Severe strain on working capital

requirement.

3 Over the years, Government has encouraged Indian industry to invest in Joint Venture (JV)

projects abroad for securing supply of Phosphoric acid. Indian companies have made

investments in such JVs in Morocco, Jordan, Senegal, Tunisia and South Africa to achieve

self-sufficiency in acid needs. The 18% GST on phosphoric acid will render the domestic

production unviable, impacting the JV operations adversely.

4 Imported DAP to attract only 5% IGST resulting in negligible impact due to accumulated

credit on imported fertilisers vis a vis 18% on input raw material by domestic manufacturers

– Contrary to ‘Make in India’, current rate structure beneficial to importers.

5 Credit Accumulation Scenario – Domestic Industry v/s Imports (in Rs/MT for DAP)

Tax rate on inputs

Domestic Manufacturers

Phos-Acid 18%,

Ammonia 18%

Imported DAP

IGST 5%

Input Tax Credit 4685 1349

(Tax paid on inputs)

GST on DAP 1030 1030

Accumulated input tax Credit 3655 319

Out of which :

Due to higher rate of GST on

inputs 2331 -

Due to subsidy on DAP 1324 319

6 Uncertainty over refund timings and treatment of subsidy component, which currently forms

30% of the value of the finished product

Domestic Industry is already reeling under the adverse effect of custom duty structure. GST

regime in its current form will make domestic player uncompetitive with respect to importers

and expose the country to the international uncertainties.

7 Suggested Relief: In view of the above issues, following corrective actions will improve the

competitiveness of the domestic fertilizer manufacturing industry and reduce its working

capital needs:

- Reducing GST rates for fertilizer inputs especially Phosphoric Acid from current

18% to 5%. Though phosphoric acid currently appears under ‘Inorganic Chemical’

chapter under the GST rate schedule attracting a GST rate of 18%, the entire fertilizer

grade acid imported into India is consumed exclusively by the fertilizer manufacturing

industry. Considering its importance to the domestic fertilizer industry and its minimal

chances of diversion for non-agriculture purposes, GST rates on Phosphoric Acid can be

revised to 5%. Similar exemptions have been given to other product categories as well

and same can be extended for Phosphoric Acid. This will bring the GST rates on acid

similar to its raw material rock phosphate, which is currently categorized in 5% GST

bracket.

8 Accelerated refund of accumulated credit similar to the refund mechanism provided in the

GST Act for exporters viz provisional refund of 90% within 7 days.

Clarity on treatment of subsidy component in the new system, with refund to be taken into

account to avoid disallowance of input credit.

9 In absence of the above corrective measures, the additional burden due to high credit

accumulation and interest cost currently being borne by the industry may result in increase in

prices of fertilizers, which will be contradictory to the Government’s approach to make GST

anti-inflationary.

Sector: VIII Flour Milling Sl. No Concern shared

1 Wheat Flour is a commodity with a very thin margin and is very price sensitive in market.

GST has imposed 5% tax on registered, trade mark and has left the unregistered Trade mark

products with 0% percentage tax (Nil).

5% is a big margin on a commodity like wheat flour as it is the food for common man and

millers work on very thin margin. Tax on flour may also increase to common citizens.

It is assumed that a GST of 5% has been imposed on registered brand wheat flour by

oversight.

2 Before GST, there was VAT for wheat products only in Tamil Nadu @ 5% and there was

no VAT in Karnataka, Kerala, and Puducherry U.T. The trade in Karnataka use to dump the

wheat flour mainly Maida into Tamil Nadu with bogus bills as though they are being sent to

Puducherry and enjoyed tax exemption.

By imposing tax on registered brand, GST has made the illegal trade mentioned above legal.

3 Suggested Relief: Exempt all flour from GST since it is the basic food/nutrition source for

the mass consumption and also since registered brand alone does not contribute to any extra

income to milling industry.

On the contrary, the imposing of 5% tax will make the industry sick and there would be a lot

of disparity if we allow the unbranded goods sold without any tax.

Margins are high only to branded goods and not for the registered trade mark goods. There

will be no uniformity and this will affect the supply chain.

It has to be mentioned here that bread has been exempted from GST whereas the flour, Maida

which is the only raw material for bread is taxed at 5%. Hence, the bakeries will not be able

to have any input credit which will increase the cost of bread.

Waive tax on registered trade mark wheat flour, since branding is difference from registered

trade mark.

Branding is mostly done by FMGC companies and multinationals only. Hence flour packed

in 10 kgs and below may be treated as branded wheat flour as they cater to upper segments.

Sector: IX Granite Sl. No Concern shared

1 As per notification 64/2017-Customs Dt. 05.07.2017 SEZ Units are exempted from paying

IGST on Imported Inputs whereas 100% EOU’s are not. Hence same status to be

maintained to EOU’s as well.

2 28% GST on finished Granite products are very high if we make sales in DTA (Earlier it

was only 14.5%).

Sector: X INFORMATION TECHNOLOGY

Sl. No Concern shared

1 The revised proviso to Rule 1 of the GST Registration Rules provides that all units in a

SEZ would have to obtain a separate registration.

However, owing to the language of the proviso, an ambiguity has emerged as to whether

(a) It allows all units in a particular SEZ to obtain a single registration; or

(b) It allows all SEZ units in a State to obtain a single registration.

Further, as per Rule 4(1)(e) of Input tax credit rules, CGST or SGST distributed by Input

Service Distributor (ISD) to units (including SEZ units) within the same state as that of

ISD would need to be distributed only as CGST or SGST.

2 Suggested Relief: It is recommended that a clarification be issued that all SEZ

units in a State can obtain a single registration. Alternatively, since all supplies to

SEZ are zero rated and substantially all of the supplies from SEZ would be

exports and it is under the purview of IGST, one single registration for all SEZ

units under the same PAN independent of where they are located may be

considered under section 148 of CGST Bill.

SEZ used to enjoy 100% exemption on all inputs by submission of form A1 and

A2. Under GST SEZ supply is termed as “Zero rated supply” . Under this clause,

massive compliance have been puton vendors dealing with SEZ of prior filing of

bonds various forms against Zero rated supply.

Suggestion: Since the supplies to SEZ units are zero rated and under the purview

of IGST, ISD distribution of all types of credits to SEZ units may be permitted

only as IGST and a refund mechanism for SEZ units may be enabled.

4 IT companies / Export units now have to first pay taxes to its vendors and then claim

the refund of Input, ab-initio exemptions like Purchases/procurements against

various declarations (H forms, I forms etc.) are no more available in GST, which is

leading to heavy burden on working capital.

Suggestion: The industry feels that the procedure should be simplified to overcome

the working capital issues.

5 3) Dealing with unregistered vendors now leads to payment of taxes by the

company (registered vendor). Most of the consultants with IT companies are

unregistered vendors and thus company will have to pay tax on their behalf and

claim a refund. The minimum exemption clause does not apply to such unregistered

vendors dealing with registered vendors.

Suggestion: There should be a minimum exemption clause to unregistered vendors

dealing with registered vendors.

6 On duty-free exports, the company now has to do compliance by providing forms

and bank guarantees against every export. This will increase the amount of

compliance required to be done and put an additional burden in processing.

Suggestion: Industry feels that compliance formalities should be simplified against

providing bank guarantee, forms etc., against each and every export.

Sector: XI Leather Sl. No Concern shared

1 The Common Effluent Treatment Plant (CETP)has been established under the

directions of Supreme Court of India.

2 National Environmental Engineering Research Institute, Nagpur (NEERI) to send a

team of experts to examine the feasibility of setting up “Common Effluent

Treatment Plant” hereinafter referred to as “CETP” for the “SMSE” tanneries so as

to bring all tanneries under the one umbrella of such treatment plants in various

place.

3 CETP facilitates reducing the dependence on ground water resulting in an improved

eco-system

Leather industry ensures direct and indirect employment to more than 2 lakhs persons,

most of whom are below the poverty line and 30% are women mostly from rural

families.

4 CETP had exemption from levy of service tax so far under Notification No. 42/2011-

Service Tax as amended by Notification 1/2012 ST dt 17.03.2012 and Notification

25/2012 ST dated 20.06.2012.

5 Under GST regime, exemption list does not contain provision for exemption to

Common Effluent Treatment Plant’s supplies. Consequently CETP is burdened with

CGST/SGST at 18% on:

a. Maintenance and incidental charges collected by CETPs from its tanner-

members and

b. Reverse Charge Mechanism supplies procured from Unregistered

Members.

6 But similar placed other entities have been given total exemption under Notification

12/2017 Central Tax (Rate) dt 28.06.2017 as listed below:

(i) Sl No1: Services by an entity registered under section 12AA of the

Income-tax Act, 1961 (43 of 1961) by way of charitable activities.

(ii) Sl No78: Services provided by operators of the common bio-

medical waste treatment facility to a clinical establishment by way

of treatment or disposal of bio-medical waste or the processes

incidental thereto.

7 Further lower rate of GST at 5% has been levied on the renewable energy devices like

(a) Bio-gas plant, (b) Solar power based devices, (c) Solar power generating system,

(d) Wind mills, Wind Operated Electricity Generator (WOEG) and (e) Waste to

energy plants/devices.

8 In addition, Services by way of job work in relation to-Processing of hides, skins and

leather falling under Chapter 41 of HSN attracts GST rate 5% with full ITC benefit.

9 Suggested Relief: For the reasons stated above, it is most respectfully prayed that

the Central Government/GST Council may be pleased to reduce the GST rate

from 18% to 5% (with ITC benefit) u/s 9 read with 11 (1) of the Central Goods

and Service Act 2017 to the Association/Companies managing the CETPs

engaged in the activity of “treatment of effluent” to its members/public and

render justice.

10 Request to reduce GST for finished leather and composition leather from 12% to 5%

and Request to reduce GST for Footwear from 18% to 5%. (Job Work).

11 GST for finished leather (which is a ready-to-use leather for manufacturing value

added products) has been fixed at 12%. The distinction between semi-finished leather

and finished leather is very little. It is also difficult to identify them on appearance

basis. Hence we wish to bring to your kind attention the following justification for

lowering the slab to 5% from 12% GST for finished leather:

CLASSIFICATION OF FINSIHED LEATHER -DIFFICULTIES AND

JUSTIICATION.

• The GST rate on Tanned and Crust Leathers falling under HS Codes 4104,

4105 and 4106 (which are only a semi-finished leathers but look like

finished leather) is 5% while GST rate for finished leather (falling under

HS Codes 4107, 4112, 4113, 4114) and Composition Leather ( HS Code

4115) is 12%.

It is very difficult to differentiate Tanned and Crust Leathers from finished leather

through mere physical examination and can be determined only through testing in a

laboratory. Hence, having 5% GST for tanned and crust leathers and 12% for finished

leather will result in enormous product classification dispute by the field formations

not only for imports but in the domestic market sale as well. This will result in

avoidable litigation.

• Though finished leather is a value added product when compared to raw hides and

skins and semi-finished leather, it is still the basic raw material for making other

value added products.

• In addition, finished Leathers manufactured in the country are mostly consumed

in value added products like shoes, bags, wallets., etc., which are exported from

the country or exported as finished leather itself. As per our analysis, out of 3

billion sq.ft. of finished leathers available in the country, 2.51 billion sq.ft is used

in export products or exported as finished leather. Thus, about 83% of finished

leather available in the country is used in export segment and hence fixing 5%

GST for finished leather will not result in any revenue loss to the Government as

exports are zero rated under GST.

• Leather is also a labour intensive and export oriented similar to that of textiles and

hence, 5% rate may be fixed for finished leather and composition leather at par

with textiles.

12 Suggested Relief: For the reasons stated above, it is most respectfully prayed that

the Central Government may be pleased to reduce the GST for finished leather

(HS Codes 4107, 4112, 4113 and 4114) and Composition Leather (4115) from

12% to 5% as this would not only enhance price competitiveness of the industry

but also avoid additional working capital blockage on account of paying tax and

seeking refund.

13 FOOTWEAR - CHAPTER 64 - footwear including Uppers

• The GST rate on Footwear with leather sole falling under different HSN

Codes, 6403 1910, 1990, 2011 to 2029, 51 11 to 5190, and 6406 1010 to 90

90. are fixed at 18%.

• Tamil Nadu is the second largest footwear manufacturer in India after Agra in

Uttar Pradesh, employing and providing jobs to downtrodden and weaker

section of the community, specially women workforce . The total export of

footwear including full shoes and Uppers forming part around 22% of the

overall export from Tamil Nadu. The share of Tamil Nadu is 34% of overall

total export of India.

• Most of the manufacturers are Micro and Small Scale industry and are located

in rural areas giving employment to villagers. These SMEs' do the job work

with low working capital and their business will come to standstill if the GST

is levied at higher rate.

• The GST @18% will affect the cash flow and working capital of these Micro,

Small Scale Manufacturers.

14 Suggested Relief: Central Government and the Council may be pleased to reduce

the rate of GST from 18% to 5% to help the industry to avoid additional working

capital blockage on account of paying tax and then seeking refund.

Sector: XII Logistics

Sl.

No

Concern shared

1 One invoice per transaction

As per GST Law, each transaction should be covered by one invoice. In the airfreight sector,

each shipment that is transported on the services of various airlines are covered by one Air

Waybill (AWB). Therefore, the airlines should issue a separate invoice for each and every

AWB or transaction. Many airlines, including the national carrier Air India, have informed

that due to their internal issues – system limitations - propose to issue fortnightly statements

(referred to as a Cargo Sales Report (CSR)), covering multiple transactions in a fortnight.

The airlines have expressed their inability to issue individual invoices for each AWB. The

industry has informed the airlines that such a procedure would be violative of the applicable

GST regulations and will result in procedural non-compliance of GST laws.

By combining many transactions, the client /place / destination-specific nature of the activity

is lost. The airlines are also not covered by Section 31 (3) (f) and Section 9 (3) and (4) of

CGST Act, which permit issuance of a consolidated invoice for specified purposes. Hence,

they are ineligible to issue a consolidated invoice. It is also possible that in case of any error

in one of the transactions in a consolidated invoice which includes multiple transactions, the

agent will be denied full Input Tax Credit (ITC).

Suggestion: The airlines may therefore kindly be advised that compliance with the GST

Law requires them to issue a separate invoice for each AWB.

2 Zero Rating for Exports

The airfreight service for exports will attract 18% GST. Under the erstwhile Service Tax

regime, this service was Zero Rated. The additional levy of 18% under GST will increase

the cost of exports and is likely to have a negative impact on the export industry of our

country.

Suggestion: GST on airfreight export services may kindly be restored to service tax level of

zero as is the practice in many countries introduced GST – Australia, Canada, Malaysia,

Singapore, UK ….

3 Centralised Registration

The GST Law had made it compulsory for state-wise registration of all offices/branches of

airfreight agents. Consequently, the financial cost of business and compliance is likely to

increase substantially. Freight forwarders are service providers and over 95% of them are

SMEs, which will find it difficult to meet the additional financial burden.

Suggestion: Since the Union Government is encouraging SMEs, the industry requests that

the state-wise registration provision may kindly be reviewed and the airfreight agents may

be permitted the facility of centralized GST registration of their organisations.

4 GST on Freight Services provided to a Foreign Supplier of goods on CIF basis:

In the erstwhile Service Tax Law, the service provider used to bill to foreign supplier relating

to CIF consignments and the situation continues even under GST.

The service element of cost subjected to GST tax and once again, the goods suffers Customs

Duty + IGST, therefore service element taxed twice, especially on imports on CIF terms.

Since, the GST charged on service element i.e. freight and service receiver being an entity

located outside taxable territory, the tax is loaded on to the cost of goods or Indian service

provider forced to absorb the tax cost.

Suggestion: The industry requests to grant exclusion for those shipments wherein service

charges are realized in foreign currency and retain all other aspects of taxation under GST.

This transaction is taxed under GST as per Sec. 7(5)(c) of IGST Act, 2017.

5 Clarification for the term “Agency”, provided in Explanation 2 to Sec. 8 of IGST Act,

2017.

The Freight Forwarding Industry underwent a major change and slowly the Agent-Principal

relationship changed to Principal-Principal relationship. Eventually, all such freight

forwarders have assumed the risk of doing the business and converted themselves as network

partners of Shipping or Air Line.

The Freight Forwarders global network (an international association formed to build

worldwide network) is helping Indian Freight Forwarders to take up export and import

shipments, as the other Freight Forwarder in a foreign country will act as counterpart in

receiving the consignment and deliver it to the ultimate exporter or importer.

A Freight Forwarder in India will bill the freight forwarder in a foreign country for the

service provided for a cargo, that qualifies to be classified as “export of services” as defined

U/s.2(6) of IGST Act, 2017.

However, the term Freight Forwarding Agent is still prevalent in the Industry, as a common

parlance, whereas, the nature and relationship do not reflect the term “Agency”.

Explanation 1 to Sec. 8 of IGST Act, 2017

For the purposes of this Act, where a person has,-

(i) an establishment in India and any other establishment outside India;

(ii) an establishment in a State or Union territory and any other establishment

outside that State or Union territory; or

(iii) an establishment in a State or Union territory and any other establishment

being a business vertical registered within that State or Union territory.

Explanation 2 to Sec. 8 of IGST Act, 2017

A person carrying on a business through a branch or an agency or a representational

office in any territory shall be treated as having an establishment in that territory.

Emphasis supplied.

Suggestion: As per the above explanation, the benefit of “export of services” may be

denied to the Indian Freight Forwarders and therefore, requesting Hon’ble Minister to look

into this submission and issue suitable clarification, to avoid unnecessary disputes.

Sector: Logistics Industry

Concerns flagged by: Association of Multimodal Transport Operators of India,

Sl. No Concern shared

1 On reading of 13(3)(a) services supplied in respect of goods which are required to be made

physically available by the recipient of services to the supplier of services, or to a person

acting on behalf of the supplier of services in order to provide the services:

The wording’s are required to be made available by the recipient of services – the recipient

of service is our Overseas Agent – he is not making the goods Physically available – The

person making goods available is the exporter who is not the client and not the recipient of

service - hence this Section cannot be applied when we are charging our overseas agent.

2 Our understanding of section 13.3 would mean that this is applicable when physical activity

is to be carried on goods like repair, packing, painting, polishing etc and not on supply of

services for the said goods transportation / movements of said goods for export as logistics

service provider to a recipient of service outside the taxable territory.

3 Suggested Relief: A clarification that such transaction that all activities listed being

transportation of goods where the final destination of goods is outside India will be covered

by Section 13 (9) of the IGST Act will dispel any apprehension or room for interpretations.

4 As freight forwarders we provide various services to our overseas customers. We seek your

confirmation, if any of these services provided in India to overseas customer do not fall

within section 13(3) to section 13(13), all such services will fall under section 13(2) and will

be treated as ‘Zero’ rated export services.

Sector: XIII MSME

Sl. No Concern shared

1 Composition Scheme – max turn over limit is 75 lakhs

But the supplier is not eligible to take any Input Tax Credit (ITC) .

They cannot charge 2% tax applicable in the invoice.

In that case the input cost on materials and consumables will go up and hence the

small and tiny industries may not be competitive in the market.

Suggested Relief: Some amount of ITC to be allowed for MSME who opt for

composition scheme.

Sector: XIV Paper & Paperboard Sl. No Concern shared

1 MEIS Scrips should be permitted to be used against payment of IGST on Imports.

2 For Student Note Books the GST Rate to be reduced from 12% to 5% as the student

community will be benefited.

3 Debit and Credit advises from the banks towards the service charges are not GST complied,

resulting the Exporters/Importers are unable to avail ITC.

Sector: XV Pumps Sl. No Concern shared

1 There are two types of compressor pumps viz Borewell Compressor pump and

Industrial Air Compressor.

2 Under GST 28% GST for air compressor pump and 18% for borewell compressor

pump. The borewell compressor pump is now categorized as “Other Pump” under

HSN Code 84131990.

3 The pump industries in Tamil Nadu are predominantely from the MSME sector and

lot of employment and livelihood particularly in the western part of Tamil Nadu is

depending upon this industry. Taxing at 28% will discourage the industry and this

industry will be critically affected.

4 Suggestion: We request that the rate for industrial compressor and borewell compressor

pumps should be fixed at 12%.

Sector: XVI Recycled Plastics Sl.

No

Concern shared

1 The GST for recycled plastic is fixed at 18% from 5.5%. This steep increase causes adverse

consequences for the environment and also affects the livelihood of rag pickers. This steep

increase is a sharp erosion of their earnings. During pre GST the rag pickers never face any

problem in carrying out their day to day living and earned their daily bread sufficiently.

After GST the 18% Tax on waste plastic has sparked a downward spiral in prices in the

recycling mark Post GST rag pickers encounter a steep fall in earnings as recyclers protect

margins, pay less for plastic waste.

2 Suggestion: In order to protect the environment, the Hon’ble Minister may kindly consider

revisiting the Tax to 5.5.% maintaining the status-quo.

Sector: XVII Restaurant

S.

No

Concern Shared

1. The GST Council has classified the restaurants under the service category and charged

different rates based on air condition as well as non-air condition.

The stand alone and middle-class restaurants (Party airconditioned) are now in GST grouped

together along with star category Hotels, Restaurants with liquor services and international

branded clauses of restaurants like KFC, MC Donald, Pizza Hut, etc.,

In ordinary stand-alone restaurants, common man will be burdened with 18% GST in the partly

A/C restaurant which is at par with the Star hotel customers.

This was also raised in the current rainy season of the Parliament and it was also noticed that

30%-35% of the business for the restaurant has already affected by this steep increase. The

middle-class people are actual sufferers by this high steep raised GST at present.

Suggestion: The industry requests that there should be a differential rate of duty structure

between partly airconditioned restaurant and star hotels. Further, for restaurants the GST

should be a flat rate of 5%.

Sector: XVIII Safety Matches

Sl. No Concern shared

1 Pre introduction of GST, for merchant exporter upon getting Form H, supply of goods

without tax was possible. But, post introduction of GST, supply should be with GST 18%

and the customer though eligible for refund, has to invest more and hesitate to place orders.

2 Reverse charge mechanism is difficult. Not able to find whether the value of supply is

below 20 lakhs or not as there is possibility of same person making bills in the various name

within 20 lakhs to escape from taxation. Our suggestion is everyone making supply of

Goods and Services has to get GST registration.

3 The GST portal is not working well.

Always problem & new registration / cancellation is not made due to non-function of site.

Sector: XIX Tractor and Accessories under Chapter 8708 Sl. No Concern shared

1 The Government was kind enough to reduce the levy of GST on tractor and

accessories by reducing from 28% to 18%

2 Suggestion: Since, the products and its part cannot be used or attached in any other

vehicle other than the tractor, the industry will be grateful if the tractor and

accessories can be re-classified under chapter 8708 10 10.

Sector: XX Wet Grinders Sl. No Concern shared

1 The wet grinders which are classified as “Electro Mechanical Domestic Apliances”

with self contained electrical motor – Tariff No.85094010 and it is fixed at 28%.

Due to this, the price of wet grinder will increase around Rs.650/- which will affect

not only the consumers but also the whole industry severely.

2 The steep increase of duty rate from 5% to 28% even for those without SSI

exemption, (the consolidated tax was 5% VAT + 12.5% ED) made severe shocking

to the manufacturers of wet grinders and will really put Micro and Small wet

grinder manufacturers into deep trouble.

3 Suggestion: The industry requests the Hon’ble Union Minister to consider reduction

in GST to 12% from 28% levied presently. This will help the survival of many wet

grinder manufacturers in MSME sector.

XXI KEY ISSUES UNDER GST REGIME WHICH REQUIRES

CLARIFICATION / CLARITY

S.

No.

Heading Particulars

1 Input tax

credit

Whether reversal of input tax credit is required when material is sent on free of

cost basis to unrelated party in India/ outside India

2 Input tax

credit

Whether CGST Credit of a particular State can be utilized against the liability of

another State

3 Invoicing Requirements of Delivery Challan for movement to Job Worker and matching of

Delivery challans issued by principal and job worker

4 Invoicing Taxable value on job work movements - what value is to be disclosed on the face

of delivery challan

5 Invoicing,

returns

What happens when goods are not returned from job worker to principal within

the time period - manner of computation of taxable value and interest;

documents to be issued and disclosure in GST returns

6 Registration Can a Job Worker in another state be added as an additional place of business

without getting registration in other state

7 Taxability Whether Inter-state procurements of goods and services can be made from

unregistered suppliers (including those who are exempted from taking

registration)?

8 Taxability Applicability of tax on High sea sales contract - whether IGST is to be paid once

or twice and which leg of transaction would be liable to GST?

9 Taxability Canteen expenses - where the Company recovers money from employees -

taxable or not

10 Taxability Composite supply requires 2 taxable supplies - whether taxable supplies includes

exempted supplies (species of taxable supply but are exempted) ?

11 Taxability Import to a state where I don’t have a business or registration - which state IGST

to be paid?

12 Transition Treatment of Service Tax under RCM paid in July - since no credit can be

availed, is refund route available?

13 Transition Whether Form TRAN-1 can be revised after filing the same. If yes, Please

provide the timelines

14 Transition Section 142(11)('c) stipulates that credit of either VAT or ST paid will be

available for credit - can credit of both be taken?

15 Valuation In case of Free of cost supply of tool by an original equipment manufacturer to

part manufacturer, what would be the treatment of Tool amortisation - whether

to be included in the transaction value to assess tax

16 Input tax

credit

Whether input tax Credit is eligible on Staff transportation by Bus or tempo

traveller to commute to office

17 Input tax

credit

Section 17 (5) postulates credit eligibility of rent a cab, insurance etc. for

notified sectors. Please notify/ clarify the list of such sectors for whom the credit

is eligible

18 Input tax

credit

Whether the following credit can be transferred through ISD, Like Hotel

Charges, Branch office rent, Telephone Bill of branch office etc. where the

registered taxpayer do not have any output liability

19 Payment of

tax

In a case where the advances is received at head office for operations carried out

at branch as well, how to determine the place of supply and location of state

from where services to be provided ( as the same are not determinable at the time

of receipt of advance)

20 Taxability In a case where the advances is received at head office for operations carried out

at branch as well, how to determine the place of supply and location of state

from where services to be provided ( as the same are not determinable at the time

of receipt of advance)

21 Taxability Similarly whenever an employee stays at any of our resort during official visit,

we are not charging for his food expenses at the restaurant. Will this be liable for

GST ?

22 Procedural Who is required to file Bill of Entry in case clearance from SEZ to DTA?

23 Taxability In case immovable property is located in TN , but the registered person is located

in WB, Whether IGST would be applicable on services related to immovable

property?

24 Taxability Whether sale of priority sector lending certification will be liable to GST, if yes

then whether to be treated as supply of goods or service.

25 Valuation Valuation of spares within warranty period in case of third party suppliers when

value covers new supply and defective products; issue on such movement.

26 Taxability Rate of GST for transmission tower lines, Scrips/licenses (MEIS, SEIS etc.)

issued under the foreign Trade Policy

27 Taxability Taxability of pure reimbursement such as (electricity charges, license fees etc.)

on actual basis

28 Registration Whether registration is required when sale on approval is performed and stock is

lying at customer premises before sale

29 Refund In a case where the GST rate on inputs exceeds the GST rate on provision of

output service, whether refund of the excess input tax credit would be available

and whether it is available for services also.

30 Refund In a case where exempted product are exported - Whether input tax credit shall

be eligible or whether refund shall be eligible for export of such exempted

product

31 Export What is the new documentation required for procurements made by SEZ, as we

understand that different practices are being followed at field level

32 Others What would be mechanism/ manner for computing the benefit of ITC/ excess

output tax in relation to Anti profiteering measure? Would sector specific

guidelines be presribed for the same . Whether any toleracne limit/ materiality

would be prescribed.

33 Registration Is there any registration requirement for sales office?

34 Input tax

credit

Whether credit of works contract related to immovable property would be

available to Builders/ Developers?

35 Transition Any possible extension of timeline for filing GSTR- TRAN 2?

36 Transition Whether Form GST- TRAN 1 would require specific approval from the tax

authorities or would the same be auto approved once filed by the taxpayer

37 Transition In a case where goods are sent on Job work and the goods have not been

received within 180 days/2 years under pre GST regime, assesse would have

reversed the CENVAT Credit on such inputs. In case the goods are received

under post GST regime, whether it is possible to avail the credit reversed earlier

38 Others whether 3PL service provider importing on record for supply of goods be

eligible to avail IGST credit on import ?

39 Registration Whether same premises can be used for the purpose of different vertical

registrations

40 Valuation Whether the definition of jobwork would include only processing/ labour activity

or the same can be construed to include value of goods also

41 Others STPI / EOU - GST is making the continuity in such zones unviable

42 Others Other Schemes under FTP - Not very lucrative

43 Transition Manner and mechanism for transitioning of credit to new registrations obtained

as a separate business vertical

44 Valuation Mechanism for transferring the Credit in case of demerger of companies

45 Others How to treat sales return from transporter's godown when the customer does not

want to accept the goods cleared before the GST regime-

46 Transition Eligibility of excise duty credit on closing stock as on the appointed date for

works contractors paying tax under ST valuation scheme

47 Others Whether cross charge of common expenses is a viable option for transfer of

credit between distinct persons, guidance note?

48 Others Whether benefit of zero rating is available for sub- contractors supplying goods

to SEZ on bill to ship to basis?

49 Others Fate/ continuity of MOU Benefits

50 Input tax

credit

Whether credit can be availed dumpers, tippers, JCB, Cranes etc. as they qualify

as motor vehicles under MV Act. However, such goods are used in the course or

furtherance of business ?

51 Input tax

credit

Whether ITC on RCM basis shall available in the same month of the invoice or

only after making the payment?

52 Others Meaning of the term 'authorized operations' used under the IGST Act?

53 Others Whether option of 50% credit as per section 17(4) is eligible for entire company

(as whole) or GSTIN wise?

54 Registration If the turnover exceeds 20L, GST is to be paid on the excess amount or from Re

1

55 Others Second hand goods from registered vendors - Valuation mechanism not

prescribed

56 Others GST implications on Sale in the course of import (SICOI) transactions

57 Others whether distinct supply/ service contract in relation to immovable property

would constitute as 'works contract' under GST regime

58 Others No specific transition provision for carry forward of Unutilized WCT TDS credit

59 Others Time of issuance of invoice for continuous supply of services - whether 30 days

benefit is available or not?

60 Others Whether opening balance of accumulated CENVAT credit on account of

Inverted duty structure can be claimed as refund?

61 Registration Technical errors/ glitches faced by the taxpayers in getting new registration

under GST, any extension of timeline in this regard

62 Taxability Whether P&M movement between distinct persons located across various states

can be exempted from the levy of GST?

63 Others No clarity on the manner of computation of BCD reversal when the goods are

removed from EOU to DTA. Notification 52/2003 -Custom read with

Notification 59/2017-Custom does not prescribe the manner/ modus operandi of

reversal of BCD

64 Taxability Whether reimbursement of expenses by the employees on actual basis would be

subjected to levy of GST or not?

\

Congratulatory Note

Auto Sector

Automotive industry is positive on the introduction of GST as the new tax regime will remove

cascading impact and improve efficiency.

Construction Sector

Construction industry compliments the Government of India on the implementation of GST. The

industry, under the erstwhile tax regime, the benefit of input tax is not fully available, the benefits

arising out of input tax credit on raw materials available under the GST regime would result in an

overall tax neutral incidence.

Elevator Sector

Implementation of GST has been a boon to the elevator industry for the reason that the nature of

business of supply and installation hitherto considered as works contract has been categorized

under “services” giving a certainty and clarity to various aspects of the business. The rate is

prescribed at 18% which is slightly above the effective tax rate at present. The GST Act also has

been more consumer centric requiring the industry to pass on the benefits.

Leather Sector

Leather Industry sincerely thank the Government for fixing the lower GST slab of 5% for raw

hides and skins and semi-finished leather and for footwear with Retail Sale Price up to Rs.500/- .

This will definitely help in enhancing the price competitiveness of the industry.

Logistics Sector

The industry compliments the Government of India for the implementation and the smooth role

out of GST. This transformative legislation will simplify the indirect tax regime in our country

and align India with the global economics on the taxation front.