10 Step Approach to GST Compliance

[CA.Tarun Agarwalla]

10 Step Approach to GST Compliances

We are all waiting for GST for a decade and at this moment while righting this article we are already in the GST regime. The taxation of GST can be sequentially observed in following 10 steps.

1.       Is It a Supply?

2.       Is it a Good or Services?

3.       Is it a Nontaxable or Exempted Supply?

5.       Is the supply by a Taxable Person?

6.       What is the place of supply?

7.       What is the Time of supply?

8.       Value of Supply

9.       Rate of Taxes

10.   Eligible ITC

11.   Tax Payable=( Out Put Tax- Eligible ITC)

1.       IS it A Supply

a.       Supply is having a very wide grammatical meaning. It means making available any thing. While in GST we need to follow only such transactions of goods, services or BOTH which are covered by section 7 of the CGST ACT.

b.      however Supply as per section 7 of the CGST or SGST act bring outs to cover almost all activities in Goods, Services or Both as supply provided

                                                               i.      made or agreed to be made

                                                             ii.      for a consideration by A person

                                                            iii.      in the course or furtherance of business,

c.      Service (Goods) Imported may or may not be in the course or furtherance of business with a consideration.

d.      4 specific activities mentioned in schedule -1 where consideration is not necessary.

e.      There are few items in schedule –III which are not supply ( Negative list)

f.     There are activities mentioned in Schedule- II which are deemed either as goods or services. The same items have been specifically included in the definition of Supply

g.    Anything beyond the scope of supply cannot be brought to tax under GST. However sub section (1) and sub-section (2) of Section 9 of CGST Act have specifically exclude 5 petroleum products and alcoholic liquor for human consumption were made outside the ambit of GST.

2.       Is it a Good or Services?

a.       In the GST we are having an idea of one tax and probably we apprehended there may not be requirement of differentiating goods and services; however fact remains is that in every steps of tax compliances we need to differentiate the goods and services separately.

b.      Further as per section 8 of the CGST Act, where in case of composite supply the rate of principal supply would be applicable to full value of composite supply. Composite supply as per section 2 of CGST is when two or more goods or services are present in a bundle. Hence to define the composite supply as goods or services the nature of principal supply might have been followed.

c.       The Goods and services are having different HSN Code and SAC code. Both were having different tax rates and hence for classification the goods and services to be classified as separate individual items.

d.      Point of taxation in case of Goods in contrast to point of taxation of services is completely different and differentiation is required.

e.      Issuance of Invoice in case of Goods in contrast services is completely different and differentiation is required.

f.        Location of Supplier of Goods and location of recipient of goods were not defined under IGST Act. However location of Supplier of Services and location of Recipients of Services were defined under IGST Act.

g.       Place of supply of goods in contrast to Place of Supply of Services were completely differently administered. The place of supply of Goods mostly depends upon the physical movement and location of goods; where as in case of place of supply of services the general principle followed is the registered principal to principal. However place of supply of services in case of immovable property the location of properly becomes place of supply.

h.      Section 10 of CGST Act talks about composition Scheme and it is available to persons dealing in Goods only except one specific service.

i.         Sub section 3 of section 9 covers specific goods or services where the taxes to be paid by the recipient. Section 24 mandates registration of every person who are liable to pay taxes under Reverse charge mechanism. Hence specific differentiations of Goods and services needed to be done to evaluate the registration requirement of an recipient.

3.       Is it a Non taxable or Exempted Supply?:- tax cannot be levied when the activity even though is a supply but either is non-taxable , or under negative list or a exempted supply. The definition of these three are specifically given and departed from traditional understanding

a.       Nontaxable supply has been defined as supply which is not leviable. The example could be anything out of preview of Supply as defined under section 7 and five petroleum predicts and liquor for human consumption specially excluded either permanently or for the time being as the case may be.

b.      Negative list items have been given in Schedule –III which is in similar line of Section 66D of the erstwhile Finance Act, however a very few items were mentioned in the schedule which are not taxable.

c.       Exempted supply has been defined under CGST Act to include all type of supply of goods or services or Both

                                                               i.      attracting Nil rate

                                                             ii.       wholly exempt from tax under section 11 of CGST Act or section 6 of the IGST act

                                                            iii.      Nontaxable supply

d.      Hence once an activity is covered as not taxable it also a exempted supply and the output tax would be nil. however, if any of such Goods or services were exported it would regard as ZERO RATED and even though the output tax is NIL the ITC would be allowed as the credit or to be refunded.

4.       Is the supply by a Taxable Person? Any tax Statue always comes out of provisions for the recovery mechanism and taxable person is the point where the levied taxes are to be collected and administered.

a.    Section 9 of the CGST Act being the charging section brings responsibility to pay the taxes by the taxable person. Further sub section 3 and sub section 4 of section 9 have come out provisions and circumstances where taxes to be paid by the recipients and all the provisions of tax administration would apply mutadis-mutandi. Further sub-section 5 of section 9 also enumerates specific services where the E-commerce operator would pay tax who is neither a supplier or nor a recipient.

b.      Section 2 defines that taxable person is who is either a registered person or liable to be registered.

c.     Section 22 and section 24 defines when a person liable to be registered. Section 22 gives a blanket minimum exemption limit for registration where as section 24 enumerates a compulsory registration in case of specific conditions

d.    Section 23 also specifies specific instances where registration is not required.

e.   Where a person is not registered and also not liable to be registered, he cannot be regarded as a taxable person and hence cannot be Brought under GST law to pay taxes.

f.     However, there are specific cases where different responsibility has been cast to register under GST to comply certain provisions however the same were not related to output tax liability. The examples are

                                                               i.      Tax Deduction Account number

                                                             ii.      Tax Collection Account number

                                                            iii.      Unique Identification number

                                                           iv.      Unique enrollment number

5.       What is the place of supply? : - Place of supply is nothing but the back bone of GST mechanism. The principle of “Destination based consumption tax”, is fulfilled by the principles of Place of supply. Place of supply not only specify the transactions as intra state or interstate, it also specifies which state or which union territory. Place of supply is the mechanism to differentiate the destination of the tax among the 31 states and 5 union territories as per GST law and constitutional amendments.( Constitutional amendment have suitable defines that for the purpose of GST, the union territories of Delhi and Pondicherry were regarded as state).

a.     Whenever a supplier or a taxable person liable to pay taxes for the supply of goods, services or both, the first requirement is to define the place of supply such goods, services or both.

b.    The location of the recipients may be required to evaluate the correct place of supply. However, for a place of supply, the location of supplier or location of the recipient is not required per se.

c.     Were the location of the recipients and the place of supply in different states the credit may not be available to the recipient. However to evaluate the correct place of supply and to denote correct state or union territory code in the invoice as well as the return of GST is the prime responsibility cast on the taxable person.

d.    It is pertinent to mentioned here that evaluating a wrong place of supply does not amount to any kind of evasion or less payment of taxes as in any way the amount of taxes were same. But the correct evaluation of Place of supply is warranted for the purpose of transferring the tax revenue to the appropriate state or union territory.

6.        What is the Time of supply? :- Time of supply is the point of time when the tax becomes payable. In the case of GST, the law has been taken color from the provisions of Finance act and the rule made there under. However, the point of taxation for goods have under goes a change from erstwhile VAT to current GST regime. The taxation on the advance amount on sale would be looking in to specifically.

7.       The value of Supply: - the value of supply has been in general a transaction Value, however, Valuation Rules have been notified in the absence of transaction value. The interest, penalty for delayed payment now have to be regarded as value for GST and accordingly taxes to believe.

8.        The rate of Taxes: the rate of taxes as per HSN wise and SAC wise to be found out and to be applied. However in the case of mix supply of different goods or services the higher rate amount all the items to be applied. Similarly, in case of composite supply, the rate of taxes applicable to the principal supply would be applied to the complete value of supply

9.       Eligible ITC:- though ITC is being allowed in gross, there are certain cases of blocked credit. Further, in the case of supply of taxable as well as exempted goods or services or both, the ITC need to be reversed partially.

a.       A registered person will be eligible to claim Input Tax Credit (ITC) on the fulfillment of the following conditions:

                                             i.      Possession of a tax invoice or debit note or document evidencing payment

                                             ii.      Receipt of goods and/or services

                                          iii.      goods delivered by the supplier to another person in the direction of registered person against a document of transfer of title of goods

                                           iv.      Furnishing of a return

b.      Where goods are received in lots or installments ITC will be allowed to be availed when the last lot or installment is received.

c.       Failure to the supplier towards the supply of goods and/or services within 180 days from the date of invoice, ITC already claimed will be added to output tax liability and interest to pay on such tax involved. On payment to the supplier, ITC will be again allowed to be claimed

d.      No ITC will be allowed if depreciation has been claimed on tax component of a capital good

e.      Items on which credit is not allowed

                                                 i.      Motor vehicles and conveyances ( with some exceptions)

                                                 ii.      food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery

                                                 iii.      Sale of membership in a club, health, fitness center.

                                                 iv.      rent-a-cab, health insurance, and life insurance (except few)

                                                  v.      Travel benefits extended to employees on vacation such as leave or home travel concession.

                                           vi.      Works contract service for construction of an immovable property (except plant & machinery or for providing further supply of works contract service)

                                               vii.      Goods and/or services for construction of an immovable property whether to be used for personal or business use.

                                               viii.      Goods and/or services where tax have been paid under composition scheme

                                                ix.      Goods and/or services used for personal use.

                                                x.      Goods or services or both received by a non-resident taxable person except for any of the goods imported by him.

                                               xi.      Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples

f.        ITC will not be available in the case of any tax paid due to no payment or short tax payment, excessive refund or ITC utilized or availed by the reason of fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.

g.       It is the duty of the taxable persons to avail the credit as per law

10.   Tax Payable= (Out Put Tax- Eligible ITC):- final tax liability would be calculated by subtracting the Eligible ITC from Output taxes. Taxes for IGST, CGST, and SGST would be paid separately.

Though the GST law has brought new challenges it brings new opportunities as well. CHAL CHALA CHAL

CA. Tarun Kumar Agarwalla