by CA Pritam Mahure | March 6, 2017
The Goods and Services Tax (GST) Council, in its 11th meeting held on March 4, 2017, decided on some key contours of the CGST and IGST Acts. This meeting has effectively cleared the deck for the Central Government to take these two Bills to the Parliament for their passage in the ongoing Budget Session.
While we covered the GST highlights from Economic Survey 2016-17 here, today we will take you through the highlights from 11th GST Council Meeting.
After the GST Council meeting, a fifteen point note was released by the Press Information Bureau (PIB).
Here are our comments on each of the points highlighting what it says and more importantly, what it doesnt!
The press release suggests state-wise single registration for a taxpayer for filing returns, paying taxes and to fulfil other compliance requirements. Most of the compliance requirements would be fulfilled online, thus leaving very little room for physical interface between the taxpayer and the tax official.
It appears that State-wise registration has been proposed and demand of centralized registration, particularly for service assesse was not acceded to. This will in turn lead to substantial increase in compliance, particularly for services sector companies like telecom, banking, insurance etc who have at present obtained a centralized registration under service tax.
On a positive note, it has provided that most of the compliance will be online to reduce the physical interface between taxpayer and tax officials. However, the PIB release falls short of expectation as taxpayers, without return formats, rules and regulations cannot design Information Technology (IT) systems to enable online compliance.
A taxpayer has to file one single return state-wise to report all his supplies, whether made within or outside the State or exported out of the country and pay the applicable taxes on them. Such taxes can be Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Union Territory Goods and Services Tax (UTGST) and Integrated Goods and Services Tax (IGST).
PIB release states that taxpayer has to file one single return. However, at present, the GST Return Rules prescribe GSTR-1 (i.e. return for outward supplies), GSTR-2 (i.e. return for inward supplies), GSTR-3 (i.e. monthly return), GSTR-6 (return for input service distributor) and GSTR-7 (return for tax deduction at source).
3. Annual Turnover Threshold for GST Compliance:
A business entity with an annual turnover of up to Rs. 20 lakhs would not be required to register with GST, unless he voluntarily chooses to do so to be a part of the input tax credit (ITC) chain. The annual turnover threshold in the Special Category States (as enumerated in Article 279A of the Constitution such as Arunachal Pradesh, Sikkim, Uttarakhand, Himachal Pradesh, Assam and the other States of the North-East) for not taking registration is Rs. 10 lakhs.
It appears that the threshold of 20 lakhs and 10 lakhs (for North-Eastern States) has been retained. Alternatively, an assesse below threshold can obtain registration voluntarily to enable them to claim input tax credit.
This threshold could be a cause of concern for many as even a tea, paan or chaat stall vendor could have a turnover of over 20 lakhs.
A business entity with turnover up to Rs. 50 lakhs can avail the benefit of a composition scheme under which it has to pay a much lower rate of tax and has to fulfil very minimal compliance requirements. The Composition Scheme is available for all traders, select manufacturing sectors and for restaurants in the services sector.
The composition scheme for turnover up to 50 lakhs will be available to:
· All traders
· Select manufacturers
· In service sector, only for restaurants (As per a few media reports, dhabas and eateries will attract 5% GST)
In order to prevent cascading of taxes, ITC would be admissible on all goods and services used in the course or furtherance of business, except on a few items listed in the Law. Read Understanding the GST in 5 Simple Ways to get clarity on claiming tax credit.
The revised GST law (section 16 and 17) disallows input tax credit (ITC) on various goods/ services such as catering, employee insurance, construction of civil structure, motor vehicle etc. This denial of credits leads to unnecessary cost burden on the assesse and tax cascading.
Now, the PIB release states that ITC would be admissible on all goods and services used in the course or furtherance of business, except on a few items listed in the Law. Thus, it will be interesting to see whether the negative list of credits is curtailed in the final law.
In order to ensure that ITC can be used seamlessly for payment of taxes under the Central and the State Law, it has been provided that the ITC entitlement arising out of taxes paid under the Central Law can be cross-utilized for payment of taxes under the laws of the States or Union Territories.
For example, a taxpayer can use the ITC accruing to him due to payment of IGST to discharge his tax liability of CGST / SGST / UTGST. Conversely, a taxpayer can use the ITC accruing to him on account of payment of CGST / SGST / UTGST, for payment of IGST. Such payments are to be made in a pre-defined order.
The PIB release states that it has been provided that the taxes paid under the Central Law can be cross-utilized for payment of taxes under States or Union Territories laws. In this regard the larger question is whether CGST credit can be adjusted against SGST and vice versa. The answer to this question in the revised GST law is no.
Thus, we will have to watch out for this interesting development in the final law.
There also appears to be a new UTGST now. This was not proposed earlier. So, do we now have a pentagonal structure with CGST, SGST, IGST, UTGST and GST cess!
Read How GST Rates Could Impact Your Business Strategy to know more on GST rates.
In the services sector, the existing mechanism of Input Service Distributor (ISD) under the Service Tax law has been retained to allow the flow of ITC in respect of input services within a legal entity.
It appears that for the services sector, the GST law has retained the ISD mechanism. However many questions are left open:
a. Does this mean that intra-entity services provided will not attract IGST and only ISD mechanism will be available?
b. Is the ISD mechanism available only for services sector and not for traders/ manufacturers?
c. What if the taxpayer is both a manufacturer and service provider (such as annual maintenance services)
To prevent lock-in of capital of exporters, a provision has been made to refund, within seven days of filing the application for refund by an exporter, ninety percent of the claimed amount on a provisional basis.
The GST Council has decided to refund, within 7 days of filing of refund application, 90% of refund claimed on provisional basis. This is certainly a very welcome step and will benefit the exporter community which is plagued by global challenges including H1B visa rules.
Further, a provision for up-front exemption (such as through the mechanism of CT-1 etc) would have certainly been more helpful for exporters.
In order to ensure a single administrative interface for taxpayers, a provision has been made to authorize officers of the tax administrations of the Centre and the States to exercise the powers conferred under all Acts.
It appears that there could be a single administrative interface for taxpayers.
Few questions are left open currently such as whether there will be a single administration for all assesses or only small taxpayers. We will have to see the fine print to understand whether the fear of 'dual' assessment of taxpayers is addressed completely.
An agriculturist, to the extent of supply of produce out of cultivation of land, would not be liable to take registration in the GST regime.
The revised GST law provides that an agriculturist shall not be liable for registration. In this regard, there was uncertainty on applicability of GST when an agriculturist is also a trader for say, fertilisers etc. Now, the PIB release clarifies that an agriculturist, to the extent of supply of produce out of cultivation of land, would not be liable to take registration in the GST regime.
To provide certainty in tax matters, a provision has been made for an Advance Ruling Authority.
It appears that the provision of an Advance Ruling Authority, already prescribed in revised GST law, has been retained.
Exhaustive provisions for Appellate mechanism have been made.
The PIB only provides that exhaustive provisions for Appellate mechanism have been made. However, not many details have been provided about the appellate mechanism.
Detailed transitional provisions have been provided to ensure migration of existing taxpayers and seamless transfer of unutilized ITC in the GST regime.
The PIB only provides that exhaustive provisions for seamless transfer of unutilized ITC is made. However, the PIB is silent on:
· How the credit of excise which is embedded in the MRP price of goods will be made.
· How the ITC of excise duty will be available for a distributor (of say cars) who has purchased goods from a State level distributor who has only charged VAT etc.
An anti-profiteering provision has been incorporated to ensure that the reduction of tax incidence is passed on to the consumers.
To ensure that there are no inflationary spikes on GST introduction, the Government has retained the anti-profiteering provision. This is a welcome step for consumers; however, anti-profiteering measures will certainly throw challenges for the industry.
In order to mitigate any financial hardship being suffered by a taxpayer, the Commissioner has been empowered to allow payment of taxes in instalments.
It appears that in case of hardships, a taxpayer may be allowed by the Commissioner to make payment of taxes in installments. This will certainly help ailing industries/ taxpayers that are not able to pay GST.
Though, the 11th Council Meeting has cleared lot of doubts around GST, few things are still under grey area.
Given that the law will be in its nascent stage, the likelihood of error increases substantially and ideally necessitates lenient penal provisions in the initial phase of GST implementation. The taxpayers were therefore eagerly awaiting lenient penal provisions; however, there is no mention of this in the PIB release.
Also, services being intangible in nature, the scope for wrong determination increases considerably for pan-India service sector players (such as banking, telecom insurance etc). However, there is no mention in the PIB release on whether the Place of Supply provisions are suitably amended for better clarity.
Now, in the next meeting of GST Council, to be held on March 16, 2017, the remaining two Bills viz., State Goods and Services Tax (SGST) Bill and the Union territory Goods and Services Tax (UTGST) Bill would be taken for discussion. Lets hope that a detailed date-wise road map for GST implementation is provided by the GST Council for the benefit of taxpayers!
If you have any questions on the GST, please write in to Pritam@irisgst.com.