HOW WILL GST IMPACT PROVIDERS OF SERVICES (PART-II)(Supply Related Provisions)

[Dr. Sanjiv Agarwal]

Meaning and Scope of Supply

'Supply' means:

• all forms of supply of goods and/or services made or agreed to be made for a consideration by a person in the course or furtherance of business,
• Importation of service for a consideration, and
• Services has been specified in schedule I, which shall be considered as a supply even if made without consideration.

The present taxable event under service tax is rendition of services which will no longer be relevant and only one event i.e., ‘supply’ needs to be tracked. Supply defined in an inclusive manner. Tax is on supply of service therefore even the supply, as prescribed in Schedule-I, is made without consideration is taxable. In the present scenario the service provided without consideration i.e., free service is not taxable.

Specific cases of Supply of Services

In following cases, transaction shall be considered as supply of services

1. Retail

Any transfer of

• Goods, or
• right in goods, or
• undivided share in goods

without the transfer of title thereof.

2. Real-estate or Construction

1. Any lease, tenancy, easement, licence to occupy land,
2. Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly,
3. construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly where the entire consideration has been received before issuance of completion certificate or before its first occupation, whichever is earlier.
4. works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.

3. IT Sector

Development, design, programming, customization, adaptation, up-gradation, enhancement, implementation of information technology software.

4. Hospitality

Supply of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

5. Job-work

Any treatment or process which is being applied to another person’s goods.

6. Common for all Services

1. renting of immovable property. i.e., telecommunication tower is immovable property for Telecom Sector etc.
2. temporary transfer or permitting the use or enjoyment of any intellectual property right,
3. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act,[ Similar to section 66E(e) of the Finance Act, 1994]
4. transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.

7. Others

Where goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.

Inter-State or Intra-State Supply

Any supply where the location of the supplier and the place of supply are in different States then, such supply shall be considered as inter-state supply, accordingly, provisions of IGST will be applicable. On other hand, any supply where the location of the supplier and the place of supply are in same State then, such supply shall be considered as intra-state supply.

Export of Services

Exports are being zero rated, and therefore input taxes paid is allowed as refund. However, to determine whether the services qualify as export of service, it would be important to analyse the provisions and conditions prescribed for “export of service”.

The definition of “export of service” is similar to the present law, and therefore no new conditions are prescribed. However, place of supply rules would need to be evaluated on a case-to-case basis to determine the tax applicability on such services.

The default rule for place of supply for export of service shall be the location of the service recipient, where the address on record of the recipient exists with the exporter. Hence, it will be critical for exporters to ensure that the address of service recipient on record can be established before the authorities on request.

Time of Supply of Services

IGST shall be payable at the earliest of the following dates, namely:

1. the date of issue of invoice by the supplier or the last date on which he is required to issue the invoice with respect to the supply, or
2. the date on which the supplier receives the payment with respect to the supply.

Transactions between head office and branch offices located outside/inside India

Services provided to overseas branch would not be eligible as export of services due to specific exclusion for such transactions in the definition of “export of service”. This is similar to the existing provisions for export of service to overseas branches.

Model GST law clearly states that an establishment of a person in India and any of his other establishments outside India shall be treated as establishments of distinct persons. Accordingly, supply of services to the branch would not be eligible as export of services, therefore, benefits available to exporter would be restricted to the supply of services to other persons. This could entail reversal of input credits as such supply would be treated as non-taxable and not as zero rated.

However, definition of import of service does not specify such exclusion. Logically, definition of import of service also excludes services imported from overseas branch but clarity should bring for better understanding.

Supply made or to be made to domestic branch in other State shall be considered as supply to distinct person. Accordingly, IGST would be leviable on such supply.

Domestic / SEZ Supply

For units located in SEZ having operations across India and providing supply of services to customers located across India, the issue would arises as to where to pay GST, and whether this would require splitting of invoices based on various locations of the service provider or the service recipient.

For this purpose, the draft law has prescribed the requirement of determination of the location from where the services are provided and the place of supply of such services, so that GST may be paid to the appropriate government.

In the context of determination of the location from where services are provided, the draft law provides clarity by defining the term “location of supplier of service” and the place of supply of services is determined based on the “location of recipient of service”. With the assistance of these terms, the appropriate location for billing and the type of GST to be paid can be determined.

Place of Supply of Services

Provisions related to place of supply of goods and/or services are contained in following categories, namely-

1. Place of supply of services where the location of supplier of service and the location of the recipient of service is in India, and
2. Place of supply of services where the location of the supplier or the location of the recipient is outside India.

An attempt has been made to cover basic provisions of place of supply are as follows:

Situation	Place of supply
Place of supply of services where the location of supplier of service and the location of the recipient of service is in India
In general	Location of recipient of supply, if available otherwise location of supplier of supply.
Place of supply of services where the location of the supplier or the location of the recipient is outside India
In general	Location of recipient of supply, if available otherwise location of supplier of supply.

The Government of India recognises the importance of promoting growth in services sectors and provides several incentives in wide variety of sectors such as health care, tourism, education, engineering, communications, transportation, information technology, banking, finance, management, among others.

With the introduction of GST, services may become costlier due to the higher tax rate and may negatively impact to service sector.

Discussions to this article

[Ganeshan Kalyani]

Nice article sir.