HOW WILL GST IMPACT PROVIDERS OF SERVICES (PART-I)

[Dr. Sanjiv Agarwal]

Services contribute over 57 percent to Indian Economy (GDP) which is the highest. The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment flows, contributed significantly to exports as well as provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.

Key Impact Areas for Services

Following areas can be identified to have direct bearing on services / service providers-

Territory

GST law shall extend to whole of India and SGST law would apply to respective States. Presently, Service Tax law extends to whole of India except the State of Jammu & Kashmir. Therefore, rendition of services in the State Jammu and Kashmir would also cover under the term 'supply and accordingly, provisions of GST shall be applied to whole of India including the State of J & K.

GST Rate

In existing taxation of Service Tax, the services are taxed at the rate of 14% alongwith 1% for Swatch Bharat and Krishi Kalyan Cess (KKC), making it a total of 15%.

In GST regime, GST Council has prescribed four-tier rate structure i.e., 5%, 12%, 18% and 26%. The GST rate is likely to be higher widely speculated at 18-26%. This means that there will be an impact on the services which will become costlier by the differential tax amount from the current levels. Resultant, services will become costlier and all the continuing / ongoing contracts have to suffer the increased rate in respect of work completed after effective date.

Double Taxation- Sale v/s Service

Currently service providers find it difficult to identify what is service and what is a good facing tax disputes with both Departments i.e., service tax and VAT /CST Departments. Service providers paying service tax are getting notices from VAT /CST Department and dealers who are paying VAT /CST are get notices from service tax Department in case of overlapping transaction.

With the introduction of one single tax-GST on supply of goods and /or services including supplies as per Schedule II, GST is likely to put an end to the double taxation of services like software, works contract etc. which are treated as goods and services both.

Taxable Person

Taxable Person means a person who is registered or liable to be registered under Schedule-V of the Act. According to Schedule-V, every supplier shall be liable to be registered under the Act in the State from where he makes a taxable supply of goods and/or services if his aggregate turnover in a financial year exceeds rupees 10 lakhs in North-East States including Sikkim and hilly area and rupees 20 lakhs for othe States. Therefore, threshold limits of rupees 20/10 lakhs available for registration under GST.

A person can opt for composition scheme if his aggregate turnover is more than rupees 20/10 lakhs and less than rupees 50 lakhs. 

Place of registration / Centralized Registration

In the present indirect tax regime, there is a concept of Centralized registration under Central tax laws.

Under GST regime, registration may be required in each State from where supplies are being made. Hence, manufacture/dealer may need to obtain registration in each State where there is a premises (including site office) from where services are being provided. Centralized registration will no longer be available.

Valuation of Services

Transaction value shall be considered for payment of tax, with various inclusions prescribed in the valuation provisions.

This transaction value of supply is subject to some inclusion or exclusion. Certain inclusions are as follows:

1. Any taxes, duties, cesses, fees and charges levied under any statute, other than SGST /CGST/IGST.
2. Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the services.
3. Incidental expenses
4. Interest or late fee or penalty for late payment of any consideration of supply.
5. Subsidies directly linked to the price excluding subsidies provided by the Central and State Governments

But shall not include(exclusion):

Discounts- Post-supply discounts will not be included in the transaction value if it is established as per the agreement and is known at, or before, the time of supply. Year-end discounts and discounts offered on achieving a target will also be excluded if they could be specifically linked to relevant invoices against which discount has been offered.

Therefore, it is important that the proper disclosure of discount should be made for the exclusion under transaction value. It is advisable to draft a proper discount policy for smooth calculation and disclosure of the discount in the tax invoices to be issued.

Returns

Under Service Tax laws, assessee has to submit 2 half yearly return in a year. Under Model GST Act provides following returns which are required to be submitted by the registered person

S.no.	Return	Periodic return to be filed for	To Be Filed By
1.	GSTR-1	Outward supplies made by taxpayer (other than compounding taxpayer and ISD)	10th day of succeeding month
2.	GSTR-2	Inward supplies received by a taxpayer (other than a compounding taxpayer and ISD)	15th day of succeeding month
3.	GSTR-3	Monthly return (other than compounding taxpayer and ISD)	20th day of succeeding month
4.	GSTR-4	Quarterly return for compounding Taxpayer	18th of the month next to quarter
5.	GSTR-5	Periodic return by Non-Resident Foreign Taxpayer	last day of registration
6.	GSTR-6	Return for Input Service Distributor (ISD)	15th of the next month
7.	GSTR-7	Return for Tax Deducted at Source(TDS)	10th of the next month
8.	GSTR-8	Annual Return	By 31st December of next FY

Refund

Time limit for making application for refund is two years from the relevant date in prescribed form and manner. In some cases, the refundable amount shall, instead of being credited to the Fund, be paid to the applicant such as in case of export of services etc.

It would be important to note that the persons would need to deal with both, the Centre and State Governments, and therefore there would be duplication of the refund procedures.

However, refund provisions specifically provide for sanction of 90% of refund to exporter of services. This will be a great relief for the industries or sectors, given that refund claims are often not processed for long periods. For balance 10%, prescribed procedure need to be followed.

Refund application has to be disposed by way of a proper order within 60 days from the date of receipt of application (which is complete in all respects), else the authorities would be required to pay interest on delay beyond 60 days. Issues could arise as to when the application can be considered as complete in all respects, and therefore show-cause notices for rejection of refund claims may still be issued in order to obtain further details, thereby extending this time limit.

In respect of all pending refunds under earlier law would be processed and disposed as per the provisions of earlier law. Any refund found eligible would be paid in cash. However, where any refund is fully or partially rejected, the provision mentions that such amount shall lapse.

(To be continued.....)

Discussions to this article

[Ganeshan Kalyani]

Assesses should be assessed by either of the Authority but not both.