MODEL GST LAW Decoding The Regulation…

Khandhar Mehta & Shah 1

CONTENTS

BASICS OF GST

LEVY IN GST REGIME

TIME AND PLACE OF SUPPLY

GST VALUATION RULES

INPUT TAX CREDIT (ITC)

TAX ADMINISTRATION

SECTOR-SPECIFIC IMPACT

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BASICS OF GST

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GST - MEANING

• GST is stage wise destination based consumption tax.

• Broad based and a single comprehensive tax levied on goods and services consumed in an economy.

• Levied and collected on value addition at each stage of sale or purchase of goods or supply of services based on input credit method but without state boundaries.

• Uniform single tax across the supply chain.

• Improvement in international cost competitiveness of indigenous goods and services.

• Enhancement in efficiency in manufacture and distribution due to economies of scale.

• GST encourages an unbiased tax structure that is neutral to business processes, business models, organization structure, product substitutes and geographical locations.

• The prices of commodities are expected to come down in the long run as dealers pass on the benefits of reduced tax incidence to consumers by slashing the prices of goods.

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Intra-state Supply of Goods and Services

•Central GST

•State GST

Inter-state Supply of Goods and Services

• IGST

•1% Additional Tax on Supply of Goods

Imports

•Basic Customs Duty

• IGST (in place of CVD and SAD)

Exports

•Zero Rated

Excise Duty – Manufacturing of Goods VAT / CST – Sale of Goods Service Tax – Provision of Services

DUAL GST : BASIC PROPOSED STRUCTURE

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PROBABLE RATE STRUCTURE IN GST

SGST (+) CGST Total Rate %

Goods and Services

Zero Rated

Goods and Services of National Importance viz. Defense etc.

Basic Education, Healthcare, Agriculture related, Public Transport etc.

Export of Goods and Services, Goods and Services provided to SEZ, UN and Foreign Diplomatic Mission

1% to 2% Gold and Silver ornaments, precious and semi-precious stones

18% Normal GST on all goods and services (distributed in CGST and SGST)

Rates without restrictions

Tobacco, Cigarettes, Lottery tickets, betting and gambling [SIN Goods and SIN Services]

Will be brought in GST at a later Stage

Petroleum and Petroleum products

Out of GST Alcoholic Liquor for Human Consumption

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ROAD MAP TO GST

Winter Session 2015 – CGST Law was to be

passed in Upper House of Parliament and State GST was to be passed

in States

Report of Joint Committee on

GST Registration, Refund &

Payment process was issued in October 2015

Draft Model GST law published

for public comment in

June’16

Monsoon Session July ‘16 – GST Law to be introduced and

Model State GST Law

• April 1, 2017- Anticipated Date of Implementation of GST

Time available for Industry for GST

preparation July 2016 to March 2017

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CHALLENGES

Multiple levies & Compliances at

State and Centre Levels

Overlapping of tax in various transactions

Complex Laws on movement of

Goods –

Form C,F…

Cascading of Taxes

Ineligibility of ITC for SPs & CENVAT

for Traders

Disputes of Classification, Valuation &

Credit Eligibility

CHALLENGES IN CURRENT INDIRECT TAX STRUCTURE

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CENTRAL LEVIES

Excise Duty

Service Tax

CVD / SAD

Central Sales Tax

GST

Customs Duty

Customs Duty

State VAT

Entry/ Purchase Tax

Octroi / LBT

Luxury/ Entertainment

Tax

GST

Lottery, Betting & Gambling Tax

Lottery, Betting & Gambling Tax

STATE LEVIES

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FORMATION

• Provide common PAN-based registration

• Enable returns filing and payments processing for all States on a shared platform

• Ensure integration of the common GST Portal with the existing tax administration systems of the Central / State Governments and other stake holders

• Build efficient and convenient interfaces with tax payers to increase tax compliance

• Carry out research, study best practices and provide training to the stakeholders

• Special Purpose Vehicle (GSTN-SPV) has been set up to create enabling environment for smooth introduction of GST

• GSTN-SPV will provide IT infrastructure and services to various stakeholders including the Centre and the States

• Strategic control over GSTN-SPV has been ensured with the Government due to sensitivity of role of GSTN-SPV and the information which would be available with it

• GSTN-SPV has been incorporated as a not-for-profit, non-Government, private limited company with 49% equity held by the Government and 51% equity held by the non-Government institutions

GST NETWORK – GSTN SPV

ROLES & RESPONSIBILITY

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STAKEHOLDERS OF GSTN

GSTN

State Tax Authorities

Central Tax Authorities

SME Taxpayers

Corporate Taxpayers

Facilitation Agencies

Banks

GSTN

Registration

Returns

GST Payment

Refunds

Audits

Appeals

STAKEHOLDERS WORKFLOW

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LEGISLATIONS TO BE REPEALED

GST

The Entertainment

Tax Act

The Luxury Tax Act

The Entry Tax Act

Chapter V of

Finance Act

Medicinal and

Toiletries Act

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LEVY IN GST REGIME

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MEANING AND SCOPE OF SUPPLY

Supply includes

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For consideration & for business

• Sale

• Barter

• Transfer

• Exchange

• License

• Rental

• Lease

• Disposal

Whether or not for consideration or business

• Importation of service

Supply without consideration

• Permanent transfer/disposal of business assets

• Temporary application of business assets to a private or non-business use

• Services put to a private or non-business use

• Assets retained after deregistration

•Supply of goods and/ or services by a taxable person to another taxable or non-taxable person in course of business

GIST OF SCHEDULE – II – GOODS VS. SERVICE

Where a person, acting as an agent, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.

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Service

•Transfer of goods without transfer in title thereof

•Transfer of business assets for private use with or without consideration

•Lease, tenancy, license to occupy land

•Lease or letting out of commercial or residential building

•Treatment or process which is applied to another person’s goods

•Declared list of service

Goods

•Transfer in title in goods

•Supply of goods by unincorporated association of body to their members for consideration

•Transfer of business assets except transfer made for the private use with or without consideration

GST SUPPLY CHAIN – LAY OUT

Supplier

Distributor Overseas Supplier

Supplier

Distributor

Factory

Gujarat OGS

Outside India

Import

Overseas Customer Export (Zero Rated)

Purchase

CGST + SGST

Trf in G

ujarat

No

Tax

Sale

CG

ST + SGST

Transfer

IGST

Purchase

IGST

Sale

CGST + SGST

Warehouse

Warehouse

BCD - Cost

IGST - Credit

India

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TIME & PLACE OF SUPPLY OF GOODS

& SERVICES

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TIME OF SUPPLY OF GOODS

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Earliest of :

• Date of removal of goods

• Date on which goods made available to recipient

• Date of issue of invoice /receipt of payment

• Date on which receipt is shown by recipient in his books

Normal Supply

• Date of expiry of successive payment / statement

• If no successive account then earliest of :

• Date of issue of invoice

• Date of receipt of payment

Continuous supply

Earliest of :

• Date of receipt of goods

• Date of payment

• Date of receipt of invoice

• Date of debit in books of accounts

Reverse charge

Earliest of :

• Time of supply when it is known

• 6 months from date of removal

Goods sent on approval

TIME OF SUPPLY OF SERVICES

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Invoice within time – Earlier of issue of invoice or receipt of payment

Invoice not within time – Earlier of completion of service or receipt of payment

Other than above – Date of receipt in books of recipient

Normal Supply

Due date of payment is ascertainable - Date on which payment is liable to made irrespective of invoice or payment Due date is not ascertainable- Earlier of payment or invoice Payment linked to completion of event - Time of completion

Continuous supply

Earliest of : Date of receipt of service Date of payment Date of receipt of invoice Date of debit in books of accounts

Reverse charge

Date of filing of return; or Date on which CGST / SGST is paid Others

PLACE OF SUPPLY OF GOODS

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• Place where movement of goods terminate

Movement of goods

• Location of such agent

Supply on direction of Agent

• Location of goods at time of delivery to recipient

Supply without movement

• Location at which goods are taken on board

Supply on Board Conveyance

• As per law of Parliament based on Council’s suggestion

Others

PLACE OF SUPPLY OF SERVICES

Particulars Place of supply

General Provision Supply to Registered Person - Location of such person Supply to any other person - Location of recipient of services

where the address is on record; and in other cases location of supplier of service

Immovable property Location of such property

Restaurant, personal grooming, fitness etc.

Location where the services are performed

Training service, Transportation of goods including mail & courier

Where supplied to a registered person, location of such person

Any other person, location where services are performed

Admission to a cultural, sporting event etc.

Location where event is actually held

Organization of a cultural, sporting event etc.

Supply to Registered Person - Location of such person Supply to any other person - Location where event is held

Goods Transportation Service

Supply to Registered Person - Location of such person Supply to any other person - Location where goods are

handed over for their transportation

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PLACE OF SUPPLY OF SERVICES Cont…

Particulars Place of supply

Passenger Transportation Service

Supplied to Registered Person - Location of such person Supply to any other person - Location from where the passenger

embarks on the conveyance

Services provided on board a conveyance

Location of first scheduled point of departure of that conveyance

Telecommunication services, including data transfer, broadcasting, DTH

Location where the telecommunication line, leased circuit or cable connection or dish antenna is installed

For mobile connection for telecommunication and internet services: • Post-paid basis - Location of billing address of the recipient • Pre-paid basis through a voucher - Location where such

pre-payment is received / vouchers are sold

Banking & other financial services

Account linked services - Location of recipient Non account linked services - Location of supplier

Insurance Services Supplied to Registered Person - Location of such person Supply to any other person - Location of the recipient of services

on record of supplier

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VALUATION RULES

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VALUATION OF SUPPLY

Value of supply

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Transaction Value, subject to • Unrelated Parties • Price is sole consideration

Transaction Value

• Shall Include

• Amount paid by recipient instead of supplier and not included in price

• Value of goods / services supplied by the recipient free of charge or at reduced cost

• Royalties and License fees related to and as a condition to supply

• Taxes and duties other than GST

• Incidental costs/ expenses (such as commission, packing, royalties etc.)

• Subsidies linked to the supply

• Reimbursable expenses incurred on behalf of the supplier

• Discount or incentive allowed after the supply

• Shall not Include

• Post supply discount known before supply and linked to invoices

• Any discount allowed before or at the time of supply as recorded in invoice

Transaction value accepted in following scenarios: • Related party transaction where price not influenced by relationship • Goods transferred from one place of business to another • Principal to an agent or vice versa

Value to be determined by proceeding sequentially through rules 4 to 6

Rule 4 – Value by comparison • Goods / services of like kind, quality and supplied at the same time • Adjustment by proper officer

Rule 5 – Computed value method • Cost + charges for design or brand + profit and general expenses

Rule 6 – Residual method • Value determined using reasonable means

Rule 7 – Prescribes the mechanism for rejection of declared value

Rule 8 – Valuation in certain cases • Pure agent of service recipient – consistent with service tax legislation • Money changer

VALUATION OF SUPPLY

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INPUT TAX CREDIT (ITC)

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CASCADING OF TAX - PRESENT TAX STRUCTURE

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Input CENVAT (Service Tax + Excise Duty)

Input Tax Credit of VAT

Input CST – Always a COST

(Service Tax + Excise Duty) Liability

VAT Liability

CST Liability

Credit available

Credit not available

Cascading Impact – Burden of Tax on Tax

Non – availability of VAT credit against Service Tax / Excise liability and vice-versa

Non – availability of CST credit against any liability

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Central GST Credit

State GST Credit

IGST Credit

Central GST Liability

State GST Liability

IGST Liability

Credit available

Credit not available

AVAILABILITY OF CENVAT CREDIT - GST

To be Setoff in the same order

Credit of CGST Credit of SGST Credit of IGST

1 CGST Liability SGST Liability IGST Liability

2 IGST Liability IGST Liability CGST Liability

3 X X SGST Liability

INPUT TAX CREDIT

Credit in respect of any invoice pertaining to a financial year cannot be taken after

• Filing of return for the month of September following the end of financial year to which such invoice pertains, or;

• Filing of the relevant annual return, whichever is earlier

Credit not admissible on such tax component of the cost of capital goods, for which depreciation has been claimed under the Income Tax Act, 1961 .

In case of supply of capital goods on which input tax credit has been taken, payment is required to be made

• for an amount equal to input tax credit reduced by percentage as may be specified, or;

• tax on the transaction value of such capital goods, whichever is higher

Time limit

Capital Goods

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EXCLUSIONS IN ITC

Exclusions

Motor Vehicle Goods / Service

Personal use of Employee

Private or Personal Use

Taxed under Composition Levy

Immovable Property

Construction Service

Works Contract

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ITC IN RESPECT OF STOCK

Entitlement of Credit of input tax in respect of input held in stock and Inputs contained in Semi Finished or Finished Goods

Person Eligible Point in Time

Person who has applied for registration within 30 days from the date he become liable and has been granted certificate of registration

On the day immediately preceding the date from which he becomes liable to pay tax

Person who has taken Voluntary Registration u/s. 19(3) of GST Act

On the day Immediately preceding the date of registration

Registered Taxable person ceases to pay tax u/s. 8 i.e. Composition Levy

On the day immediately preceding the date from which he becomes liable to pay tax u/s. 7

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SWITCH OVER PROVISIONS

Registered Taxable person availing benefits of Input

Tax Credit (ITC)

Switches over as a taxable person paying tax u/s. 8 i.e. Composition levy

Goods / Services supplied by him become exempt absolutely u/s. 10

1. He shall pay an amount equal to the credit of input tax in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock immediately preceding the date of such switch over or date of exemption.

2. Balance of Input tax credit, if any, lying in electronic credit ledger shall be lapsed.

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REVERSAL OF ITC

ITC on Goods / Services

• Partly used for Business • Partly used for other

purpose

• Partly used for taxable supply

• Partly used for non-taxable supply

ITC attributable to business purposes

will be eligible

ITC attributable to taxable supply will be eligible

Taxable supply shall include zero rated supply but excludes exempted supply

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GST ELECTRONIC CREDIT ALLOWED ON SUPPLY TRANSACTIONS

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GSTN

Dealer A

Dealer B Supply along with Invoice

Cash Flow

Credit Flow

TAX ADMINISTRATION

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REGISTRATION, PAYMENT & REFUND

State wise, Business vertical wise and Voluntary Registration options are available.

Concept of ISD continue.

Single threshold limit for goods and services. i.e. Rs. 9 Lakhs for normal category and Rs. 4 Lakhs for Northern Eastern State incl. Sikkim.

Certain persons required to take compulsory registration. Such as Inter state supplier, Casual dealer, Person required to pay tax under RCM, Person paying TDS, Person acting agent, ISD, e-Commerce operator, Aggregator, Other persons to be notified by Government.

Registration

Payment

Single threshold limit for goods and services. i.e. Rs. 10 Lakhs for normal category and Rs. 5 Lakhs for Northern Eastern State including Sikkim.

Three modes of payment of tax under GST regime are proposed i.e. through internet banking / credit or debit card, Over the Counter payment (upto Rs. 10,000 per challan) and payments through NEFT/RTGS.

The input tax credit as self-assessed in the return of a taxable person shall be credited to his electronic credit ledger to be maintained in the manner as may be prescribed.

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REGISTRATION, PAYMENT & REFUND

Refund claim is required to be filed within 2 years from relevant date.

Refund order to be passed within 90 days from the date of receipt of application.

80% refund can be released provisionally and balance 20% after verification.

For refund application < Rs. 5 Lakhs only declaration & proof for incidence of tax is required.

Refund

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Refund claim available in case of

Export Accumulated credit due to inverted duty

structure Deemed Export

RETURNS

Types of Return Form Period for filing Return

Outward supplier GSTR -1 10th of next month

Inward supplier GSTR-2 15th of next month

All assessees except specified

GSTR-3 20th of next month

Person paying TDS GSTR-7 10th of next month

ISD GSTR-6 13th of next month

Composition Dealer GSTR-4 18th of next month following end of quarter

Annual Return GSTR-8 31st December following F.Y.

Final Return - 3 months from date of cancellation or order of cancellation whichever is later

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GOODS AND SERVICE TAX APPELLATE TRIBUNAL (‘GSTAT’)

• One branch for each state i.e. 29 GST Appellate Tribunal

• GSTAT shall comprise of following members:

GSTAT

Member (Judicial) Member

(Technical – CGST) Member

(Technical – SGST)

TRANSITIONAL PROVISIONS

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MIGRATION OF EXISTING REGISTERED TAX PAYERS

Issuance of Provisional

Certificate of Registration (RC)

Validity of RC for 6

months or extended

period

Furnish information as may be prescribed

Final RC to be issued if information

found adequate

•Cancellation of provisional RC on failure to submit information

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CARRY FORWARD OF CENVAT CREDIT / ITC

• Amount of eligible credit carried forward as per earlier law in return filed for the period ending immediately prior to appointed day

• Such CENVAT credit is eligible for utilizing credit against CGST / SGST as the case may be

Amount of CENVAT Credit / ITC to be allowed to registered taxable

person under GST

• Un-availed CENVAT credit not carried forward in return filed for the period ending immediately prior to appointed day under earlier law

• Such amount should also be eligible for CENVAT Credit under CGST / SGST

Amount of un-availed* CENVAT credit of Capital goods to be allowed to registered taxable

person under GST

*Un-availed amount of CENVAT credit in respect of Capital goods = Aggregate amount of CENVAT Credit (-) Credit already availed in respect of capital goods in earlier return

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ELIGIBILITY OF CENVAT CREDIT / ITC FOR INPUTS IN STOCK

Category of Persons

Registered taxable person under GST who :

• Was not liable to register

under earlier law • Is engaged in

manufacturing of exempt goods under earlier law

• Has availed benefit of composition scheme under earlier law

Taxes in respect of:

• inputs held in stock on appointed date

• inputs contained in semi-finished or finished goods held in stock on appointed date

Intended to be used for making taxable supplies

Not availed CENVAT credit under earlier law due to above mentioned situations

Not paying tax under composition scheme in GST regime

Eligible CENVAT credit under GST regime also

Possession of invoice issued which is not earlier than twelve months immediately preceding appointed day.

Eligible Duties & Taxes Conditions

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ELIGIBLE DUTIES AND TAXES TO BE CARRIED FORWARD

Service Tax

Excise Duty

Additional Excise Duty on Textile

and Textile Articles

Additional Excise Duty on Goods of

Special Importance

COUNTER-VEILING

DUTY (CVD)

National Calamity

Contingent Duty

Whether Krishi Kalyan Cess (KKC) to be carried forward in GST regime ? 44

SPECIAL ADDITONAL DUTY (SAD)

EXEMPTED OR DUTY PAID GOODS RETURNED AFTER APPOINTED DATE

Exempt goods / Duty paid goods removed/sold under earlier law within 6 month

prior to appointed day

Returned within 6 months from appointed day to any

place of business

Not returned within 6 months of appointed day

to any place of business

No tax payable under GST Law

Tax payable by person returning the goods if such

goods are liable to tax under GST

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GOODS SENT ON JOBWORK RECEIVED ON OR AFTER APPOINTED DATE

Particulars Input Semi Finished Goods Finished Goods

Type Inputs received in factory

/ place of business had

been removed/dispatched

as such or post partial

process

Semi finished goods had

been removed from

factory / dispatched from

place of business

Excisable goods

manufactured in a factory /

any goods dispatched from

place of business

Process to be done prior to

the appointed day

Further processing,

testing, repair,

reconditioning or any

other purpose

For carrying out certain

manufacturing processes

Carrying out tests or any

other process not

amounting to manufacture,

to any other premises

Returned after completion

process within 6* months

from appointed day

To factory / place of

business - No Tax payable

To factory / place of

business - No Tax

payable

To factory / place of

Business - No Tax payable

Returned after completion

of process, after 6* Months

from appointed day

Tax shall be payable if

Taxable under GST by Job

worker or Manufacturer

Tax shall be payable if

Taxable under GST by Job

worker or Manufacturer

Tax shall be payable if

Taxable under GST by

person returning goods

Selling goods directly from

premises of Job worker

within 6* Months

N.A. On payment of duty

within India or export

without payment of duty

On payment of duty within

India or export without

payment of duty

* Declaration to be filed by Manufacturer & Jobworker, if goods returned within 6 months * 6 Months can further be extended by 2 months by competent authority 46

PRICE REVISION IN CONTRACT

A supplementary invoice or debit note is required to be issued within 30 days of revision

Tax is required to be paid to the extent revision under GST regime.

A supplementary invoice or credit note is required to be issued within 30 days of revision

Tax liability to be reduced to the extent of revision under GST regime.

UPWARD REVISION

DOWNWARD REVISION

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BRANCH TRANSFER AND GOODS SENT ON APPROVAL BASIS

Treatment of Branch Transfers :

Treatment under SGST Amount of input tax credit reversed prior to the

appointed day shall not be admissible as credit of

input tax under this Act

Goods sent on Approval Basis :

Goods returned within 6*

months from appointed day

No tax payable

Goods returned post 6*

months from appointed day

Tax shall be payable by:

Person returning goods

Person who has sent goods on approval basis

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* 6 Months can further be extended to 2 months by competent authority

IMPORT / INTERSTATE SUPPLY ON OR AFTER APPOINTED DATE

Transaction Liability of Tax payment under GST regime

Supply made on or after appointed date Liable to Tax

Transaction initiated on or before appointed date on which full tax has been paid in earlier law

Not liable to Tax

Transaction initiated on or before appointed date on which partial tax has been paid in earlier law

Liable to pay Tax to the extent of balance amount

Note: A transaction shall be deemed to have been initiated before the appointed day if either the invoice relating to such supply or payment, either in full or in part, has been received or made before the appointed day.

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GST IMPACT ON BUSINESS VERTICALS

Suppliers

• ITC Credit

Marketing

• Pricing Strategies

• Effect on demand

IT Systems & Human Resource

• Employee education

• System design

• Change Master Record

Supply Chain & Logistics

• Transaction Framework

• Warehousing

• Costing Analysis

Legal & Finance

• Cash Flow Impact

• Drafting Agreement

• Impact on existing contract

Customers

• Financing Model

• Offer Structure

SECTOR SPECIFIC IMPACT

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Manufacturing Sector

Pharma Sector

Automobile Sector

Media and Entertainment Sector

Hospitality Sector

IT & ITES Sector

Turnkey Projects / EPC Sector

Real Estate Sector

Education Sector

Banking and Financial Sector

Logistics Sector

E-Commerce

KMS OFFERINGS

Assessment of the impact of GST on different business functions

Evaluation of transitional impact on current business structure

Drawing up of new business model suitable under GST regime

Implementation of new business model

Post-implementation, Validation & Refinement of the operating model selection

Due Diligence

Sector Specific Structuring

Corporate trainings and Educational seminars

Assistance to IT team in implementation of ERP

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Thank You Khandhar Mehta & Shah

3rd Floor, Devpath Complex,

Off C G Road, Navrangpura,

Ahmedabad – 380006

Gujarat – India

Phone : +91 79 66315450/51/52/53

Email : amish@kmsindia.in

URL : www.kmsindia.in

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