SERVICES UNDER GST REGIME (PART-III) (Supply, Valuation & Input Credit)

[Dr. Sanjiv Agarwal]

Time of Supply of Services

GST 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.

The provisions are generally similar to existing Point of Taxation Rules.

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.

Provisions of place of supply in general will be as under:

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.

However, for specific services, place of supply of services provisions have been prescribed in sections 9 and 10 of model IGST law.

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 specific inclusions or exclusions. Specific 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 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.

Payment of Tax

Taxes shall be paid on a monthly basis online. Physical payments have been prohibited. Payment of tax can also be made by debit card / credit card / RTGS etc. Presently, in certain cases, payment of tax is allowed on a quarterly basis. For Government supplies, Tax Deduction at Source (TDS) will be done by the Government. In case of e-commerce, Tax Collection at Source (TCS) will have to be done.

Returns

Under Service Tax law, assessee is required to submit two half yearly returns in a year. However, Model GST law (version-II) provides for more than 30 returns which are required to be submitted by a registered person. Since the number of returns to be filed will be over 30, it would add to cost of compliance and more compliances.  GSTN has appointed over 30 GST Suvidha Providers (GSPs) who will be the conduit or interface between the taxpayer and the GST network (GSTN). Service providers can avail the services of GSPs to comply with the GST requirements including invoicing / return filing etc.

 Input Tax Credit

Under the existing indirect tax laws, service sector is unable to claim credit of VAT or Central Sales Tax paid while rendition of services which involves transfer of goods. Similarly, the trader, who procures auxiliary services for selling of goods, is unable to avail the credit of tax paid on input services used for selling of goods and end up paying additional cost equal to the amount of the service tax. This will no longer be there in GST regime and seamless input tax credit as per provisions will be allowed across supply chain for GST.

Certain conditions are prescribed for availment of credit, i.e., the person should have tax-paying documents and should have received services and tax charged by the supplier, on which the recipient is entitled to credit should be paid to the appropriate Government. This shall bring onerous compliance requirements upon the recipient to verify whether the supplier has discharged its tax liability.  While the GSTN system will enable fulfillment of this requirement based on the matching principle, inserting this as a condition may require discharge of responsibility by the recipient.

A taxable person, being an exporter may claim refund of any unutilized input tax credit at the end of any tax period. In other words, exporter of services shall be eligible to get refund on eligible inputs, capital goods and input services.

'Capital goods' has been liberally defined for being eligible to claim input tax credit in respect of capital goods. 'Capital goods' means goods, the value of which is capitalized in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business. Accordingly, input tax credit will be eligible for capital goods only on those goods, the value of which is capitalized in the books of accounts. This will enable many service providers to claim Cenvat credit.               

Input Service Distributor concept (ISD) concept has been proposed for transfer of credit of input services between two or more locations. ISD can transfer credit of all types of GST (CSGT, SGST or IGST). Considering the possibility of multiple registrations State-wise, ISD could be used as a tool to ensure optimal utilization of head office-related credit, hence resulting in actual reduction in cost.

Epilogue

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 become costlier due to the higher tax rate and may negatively impact to service sector.

(Concluded)

Discussions to this article

[Ganeshan Kalyani]

Dear Sir, very informative article. Thanks for sharing with us. Sir, the main point of concern is conplaince part under GST, the service sector presently files only 2 half yearly return under centralised registration number. Under GST atleat 60 returns are required to be filed in a state and an annual return . Supposing a company has presence in 28 States , then 60 returns multiply by 28 comes and 28 annual return totalling to 1708 returns in a year is required to be filed. Thanks.