SERVICES UNDER GST REGIME (PART-II) (Registration and Supply)

[Dr. Sanjiv Agarwal]

Place of Registration / Centralized Registration

In the present service tax regime, there is a concept of centralized registration subject to fulfillment of certain conditions.

Under GST regime, registration may be required in each State from where supplies are being made. Hence, service provider 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 which will increase the cost of compliance for the assessees. It would become an unproductive exercise for multi location enterprises such as banks, insurance company etc.

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’ of service would be the taxing event. Supply is defined in an inclusive manner. Tax is on supply of service. Therefore, even the supply, as prescribed in Schedule-I, made without consideration is taxable. In the present law, the services provided without consideration i.e., free services are not taxable.

Specific cases of Supply of Services

As per Schedule-II of Model GST law (version-II), in the following cases, transactions or activities 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. Information Technology Sector

Development, design, programming, customization, adaptation, up-gradation, enhancement and 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

Job work will include 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,
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 shall be considered as a supply of services.

Most of the aforementioned services are taxed to service tax as a declared service under section 66E of the Finance Act, 1994. In some services like that of IPR or works contracts or restaurant sales, VAT is also payable. In GST regime, only one tax ,i.e., GST will be charged and moreover, there will be a clarity on to the nature of service. Overall tax rates are also likely to come down which may benefit the consumers of these services.

Inter-State or Intra-State

Any supply of services 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 and as such, accordingly, provisions of IGST law 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 and only CGST / SGST shall be levied.

Presently, all services are subject to central tax, i.e., service tax which applies to whole of India except the State of Jammu & Kashmir. There are no State boundaries and it applies uniformly to all services and service providers. In GST regime, tax treatment is different for inter-State and intra–State activities. Services between two or more States will attract IGST where as intra-State services shall be subject to CGST and SGST which are likely to be equally split.

Export of Services

Exports are being zero rated and, therefore, input taxes paid shall be allowed as a 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 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.

Import of Services / Reverse Charge

Import of services from outside India shall be taxed in the hands of recipient of services under reverse charge mechanism. Central / State Government will also notify certain cases where tax shall be collected under reverse charge mechanism as is presently done.

Further, any person receiving certain specified services for personal use of value exceeding a specified amount will also be liable to pay GST under reverse charge.

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.

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.

(To be continued.....)

Discussions to this article

[Ganeshan Kalyani]

Dear Sir, very informative article. Thanks for sharing with us. Sir, a question came in my mind as regard reverse charge provision in the proposed GST. Sir if the threshold limit is so low say 20 lacs and 10 lacs for special states, in which case almost all assesses would come under the tax then why reverse charge is still brought under GST law. Thanks.