Chartered Accountants · 2017. 6. 14. · GST – An overview GST is a destination based tax on consumption of goods and services.It is levied at all stages right from manufacture

Nikunj J. Parekh & Co. Chartered Accountants

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GST – An Overview

Time and Place of Supply

Contents

Background 1

4 Advances received

Input Tax Credit 5

Returns 6

Transitional provisions

Impact of GST on Manufacturing industry

Conclusion

7

8

9

Background

Concept of Value Added Tax

Retailer

Mfg. Cost

100 Purchase Cost 110 Purchase Cost 130 Purchase Cost 165

Profit

10 Profit 20 Profit 20

Sale Price

110 Selling Price 130 Selling Price 150

VAT

11 VAT 13 VAT 15

Invoice Value

121 Invoice Value 143 Invoice Value 165

Nikunj J. Parekh & Co. Page 3

Wholesaler Consumer Manufacturers

Approx 12% - 15%

Background

Approx 6% - 8%

Approx 5% - 12.5%

Cost of Tax = Basic

Customs Duty, cess on

customs duty, services

consumed beyond point of

removal, SBC. KKC

Maze of Taxes resulting in “COST OF TAX”

Cost of Tax = Excise Duty

paid, Service Tax Paid,

SBC, KKC

Cost of Tax = Octroi duty /

LBT, Service Tax Paid,

SBC, KKC

Cost of Tax = VAT charged

by Retailer

Approx 6% - 8%

Uses Imported raw

material, locally procured

goods and various services

in the factory of

manufacture

Buys the goods in bulk from

Manufacturer, uses various

services like transport,

warehousing etc.

Makes the goods available

to the place of customer,

ancillary services including

rent of shop are used

Buys Products for

consumption

Manufacturer

Distributor

Retailer

Consumer


Background

Pitfalls of present indirect tax system

► Multiple regime of taxes such as Central or State Excise, Service Tax, Value Added Tax, Entry

Tax, Luxury Tax, Entertainment Tax, Octroi, etc.

► Lack of uniformity on rates and structure

► Cascading effect – VAT on excise / CVD – Tax on tax

► Disharmonious VAT rate across the States

► Stock transfer cumbersome and cost

► Entry tax barriers to free movement of goods

► Lack of seamless credit

► CST – No credit for manufacturer / trader / service provider

► Trader does not get credit of Service Tax / Excise Duty / CVD


GST – An overview

► GST is a destination based tax on

consumption of goods and services. It

is levied at all stages right from

manufacture up to final consumption

with credit of taxes paid at previous

stages available as setoff. In a nutshell,

only value addition will be taxed and

burden of tax is to be borne by the final

consumer.

► Taxable goods and services are not

distinguished from one another and are

taxed at a single rate in a supply chain

till the goods or services reach the

consumer.

► Exports would be considered as zero-

rated supply and imports would be

levied the same taxes as domestic

goods and services adhering to the

destination principle in addition to the

Customs Duty which will not be

subsumed in the GST.

One Nation

Two Authorities

Three Taxes

Four Rates

GST – “Goods and Services Tax”

Page 6 Nikunj J. Parekh & Co.

GST – An overview

What will be taxed?

All goods and Services (subject to

exclusions)

Imports

Exports are taxed at Zero rate

When will be taxed?

Destination based – final

consumer bears the tax

Seller / service provider pays tax

only on the value addition; gets full

input tax credit.

What will be the tax rates?

Four rate tax structure (5%, 12%,

18% and 28%) – lowest rate for

precious metals, stones etc.,

reduced rate for necessary items;

standard rate for other products.

Who will be taxed?

All manufacturers, traders /

dealers, importers / exporters and

service providers.

Small business / traders below a

limit are exempted.


In India there is a Federal Structure of the

Economy and there being inability of either

the States or Centre to forego autonomy,

revenue, etc., Dual GST is the only way

forward:

Central GST (“CGST”) – To be

administered and collected by Central

Government

State GST (“SGST”) – To be

administered and collected by

Respective State Government

Integrated GST (“IGST”) (For inter-state

transactions) – To be administered and

collected by Central Government.

However, the proceeds to be distributed

between Centre and the States

GST : Indian Perspective


GST – An overview

GST : “Dual” Model : Example

Transaction A – B B – C C – D Net

Effect

Sale Price 100 200 300 300

CGST Collected 10 20 30 30

SGST Collected 10 20 30 30

Output CGST 10 20 30 60

Input CGST 0 (-) 10 (-) 20 (-) 30

CGST to Pay 10 10 10 30

Output SGST 10 20 30 60

Input SGST 0 (-) 10 (-) 20 (-) 30

SGST to Pay 10 10 10 30

• Essential food grains, vegetables, fresh fruits, etc, - no input tax credit

• Export of goods or services outside India – refund for input tax 0%

• Merit goods (essential goods, which are currently exempted under Central excise Regime) 5 %

• Standard GST: Majority of goods currently under the 5% VAT schedule

• Services (Services currently having Abatement in Value) 12 %

• Standard GST

• Services 18 %

• Other (Remaining) Goods 28 %

• Demerit goods (Tobacco products, luxury cars, aerated drinks)

• Tax rate expected to be total 40% or higher. 28 % + Cess

GST – An overview


GST Rates

GST – An overview

Taxes subsumed under SGST

SGST

Value Added Tax / Central Sales Tax

Luxury Tax

Entry Tax / LBT / Octroi

Taxes on Lottery, Betting and Gambling

Entertainment Tax

State Surcharge & Cess


Surcharges

SAD

Service

Tax

Excise

Duty CVD

Medicinal

Excise

Cesses CGST

GST – An overview

Taxes subsumed under CGST


GST – An overview

Taxes not subsumed under GST

Basic Customs Duty

Central Excise Duty on Petroleum

Products

Central Excise Duty on Tobacco &

Tobacco Products

Clean energy cess

Value Added Tax

Petroleum Products

Alcoholic liquor

State Excise duty on Alcoholic Liquor

Stamp duty

Electricity duty

Taxes on profession, trades callings and

employments

Tolls

Property Tax

Central level taxes State level taxes


GST – An overview

Current Tax Structure

Current tax structure v/s GST framework

GST framework Activity

Excise Service Tax Entry Tax VAT Customs Duty CST IGST SGST CGST BCD

Import of goods P P P P

Manufacture P Tax to be charged on supply

Inter-state sale / purchase

(supply) of goods P P P P

Intra-state sale / purchase

(supply) of goods P P P P

Inter-state stock transfer of goods P P

Import of Service P P

Inter-state sale / purchase

(supply) of service P P

Intra-state sale / purchase

(supply) of service P P P

Exports Zero rating – exemption or refunds Effective Zero rating - refund


GST – An overview

Supply - meaning

Supply is by a taxable person

Supply is in the taxable

territory

Supply is for a

consideration

Supply is in

the course or

furtherance of

business

Supply* = Goods and/or Services

*Supply includes

Sale, Transfer, Barter, Exchange, Lease, Disposal


GST – An overview

Types of Supply

Location

of

supplier

Location of

Supplier

Place of

Supply

SGST

+

CGST

Same States

Intra-state supply

Place of

Supply IGST

Location of

Supplier

Inter-state supply

Different States


Time of supply

Particulars Goods Services

Forward charge Earliest of Earliest of

Within prescribed time from

supply/removal/delivery/

making available(if invoice not

issued timely)

Within prescribed time from

service completion date (if

invoice not issued timely)

Invoice Date Invoice date

Payment date Payment date

Reverse charge Earliest of Earliest of

Receipt date Payment date

30 days from invoice date 60 days from Invoice date

Payment date If not above 2, then entry date

in recipient books

If not above 3, then entry date

in recipient books


Place of Supply - Goods G

oo

ds

When movement of goods is involved Place where movement terminates for

delivery

When movement of goods is not involved

Location of goods at the time of delivery to recipient

Delivery of goods on direction of third person

Principle place of business* of third person

On-site assembly/installation Place of assembly/installation

Supply of goods on board a conveyance

Location at which goods are taken on board

For Goods (Other than Import/Export)


*Principal place of business = place of business specified as the principal place of business in the

certificate of registration

Goods with movement – location where movement terminates

3 party arrangement – principal place of business of person directing the goods

Supply without movement – location of such goods

Place of Supply - Goods

General Rule


Service Description If supplied to a

registered person

If supplied to any other person

Event related

service or training

service

Training and performance

appraisal service

Organisation of cultural, scientific,

sporting, educational,

entertainment event or any

ancillary event

Insurance Service

The location of such

registered person

Location where the services are

actually performed

Location where the event is

actually held

Location of the recipient of the

insurance service

Transportation

Service

Transportation of goods, including

by way of mail or courier

Passenger transportation service

The location of such

registered person

Location at which the goods are

handed over for their

transportation

Location where the person

embarks on a conveyance for a

continuous journey

On board

services

Service on board a conveyance

including vessel, aircraft, train or

motor vehicle

First scheduled point of departure of the conveyance

Event based

service

Organisation of cultural, scientific,

sporting, educational, entertainment

event or any ancillary event

Location where the event is actually held

Financial Service Banking and financial services

including stock broking services

Location of the recipient on the records of the supplier

Location of the supplier if the location of the recipient is

not available

Place of Supply - Service


Service Description Place of supply

Performance based

services

Restaurant and catering services,

personal grooming, fitness, beauty

treatment, health services

Location where the services are actually

performed

Telecommunication

Service

Service by way of fixed

telecommunication line, leased circuits,

internet leased circuit, antenna services

Location where the antenna, line, cable or

circuit is installed for supply of service

Mobile connection and internet services

provided on post paid basis

Billing address of the recipient of service

Prepaid telecom, internet or DTH

service

Through a selling agent, re-seller, distributor of

SIM cards – address of the selling agent,

distributor or re-seller

Directly to final customer – where such pre-

payment is received

Any other case Address of the recipient as per the records of

the supplier



When provided to registered person – location of such person.

When service provided to unregistered person – address of recipient on record of provider (if such record exist)

Location of service provider in all other cases


General Rule


Month 1 – advance received

Advance received for services to be

supplied

Receipt voucher or other specified document to be

issued

Time of supply of service – receipt of

payment – tax liability triggered

Invoice wise and SAC wise reporting in GSTR -1 (Part 11)

Transaction ID would be generated on payment of tax

for each transaction

Impact / Challenges

Bifurcation of advance

against each HSN/ SAC in

case of common invoice for

multiple services required

State Code to be provided -

advances would need to be

specifically aligned to a State

Transaction ID would be auto

generated by system on

payment of tax and needs to

be captured in IT system


Advance received

Invoice raised – preferably should have details of

advance document number

Invoice details (for which advance received) to be

reported in part 12 of GSTR 1

Tax to be paid on balance invoice value after

adjustment of tax paid on advance

Month 2 – invoice raised

Impact/ Challenges

How to show tax adjustment for GST of advance on actual invoice?

System to be configured to link document for advance to actual invoice and auto reporting for return

In case of partial adjustment of invoice against advance - Invoice to be reported twice - in outward

supply as well as in part 12 of GSTR 1

Transaction ID may be used multiple times till advance adjusted

Advance received


Input Tax Credit

• Timeline:

• up to the following dates, whichever is earlier:

• Date of filing of return for the month of September following the financial year to which such invoice pertains; or

• Date of filing of relevant annual return for that financial year.

• Other conditions for availment:

• possession of the tax invoice or other tax

paying document issued by the supplier of goods and/ or services;

• goods and/ or services have been received;

• return has been furnished under Section 34;

• tax charged in respect of such supplies has been actually paid to the credit of government;

• goods against an invoice are received in lots or installments, upon receipt of last lot or installment

• motor vehicles (unless they are used in usual course of business or are used for providing taxable services viz, transportation of passengers, or transportation of goods, or imparting training on motor driving skills);

• goods and/or services used for private or personal consumption;

• supplies used in the construction of an immovable property (other than plant and machinery):

• Except where it is input services for works contract

• goods and/ or services on which tax has been paid under the composition levy

• Goods lost, destroyed, written off, samples

Conditions Restrictions

Conditions/ Restrictions for availment of ITC


Order of utilization of ITC

Nature of

liability

Order of

utilization

ITC to be

utilized

IGST

I IGST

II CGST

III SGST

CGST I CGST

II IGST

SGST I SGST

II IGST

GST credit mechanism

Credit

Availability

Matrix

Output

CGST IGST SGST -

State A

SGST -

State

B

Input

CGST a a r r

IGST a a a a

SGST -

State A r a a r

SGST -

State B r a r a

GST to trigger tax obligations in every state –

Credit accumulations and compliances would also be at the State level

Input Tax Credit

Utilisation of Input Tax Credit („ITC‟)


Matching by GSTN

Matched Unmatched

ITC Finalized in

Purchaser's ITC Ledger

Reconciled Non-Reconciled

ITC finalized in

Purchaser's ITC

ledger

ITC Reversed to be

paid

along with Interest by

Purchaser

Returns


Two months period for

reconciliation

GSTR - 1

GSTR - 2

GSTR - 3

Details of Sales

10th of the next month


Details of Purchase

Monthly return


10

15

20

Returns


GSTR - 4

GSTR - 6

GSTR - 9

Quarterly return

(For composition dealers only)

18th of the next month following the quarter


Input Service Distributor (ISD)

Annual return

31st December of next year

18

13

31

Returns


Sr. No. Return Nature of the return Due date of the return

1 GSTR 1 Details of outward supplies made 10th

of the succeeding month

2 GSTR 2 Details of inward supplies made 15th


3 GSTR 3 Monthly return 20th


4 GSTR 4 Quarterly return for composition dealer 18th

of the succeeding month to the quarter

5 GSTR 5 Periodic return for non resident foreign tax payer Within 7 days after the expiry of registration

6 GSTR 6 Return for Input service distributor(ISD) 13th


7 GSTR 7 Return for tax deducted at source(TDS) 10th


8 GSTR 8 Return for E-Commerce Operator 10th


9 GSTR 9 Annual return (9B for auditing of Accounts for turnover above 1 Crore) 31st December of the next financial year

10 GSTR 10 Final Return Upon cancellation of registration

Returns

Filing of late return - Penalty of Rs. 100 per day (Maximum Rs. 5000)


► Existing taxpayers to be issued Provisional Registration valid for 6 months (extendible)

► Upon furnishing of prescribed information, final RC to be granted

► Cenvat credit/VAT carried forward in return allowed as ITC under GST

► Un-availed Cenvat/VAT credit on capital goods, not carried forward in return, shall also be

allowed as ITC under GST

► Eligible duties and taxes in respect of inputs held in stock permissible as credit to registered

persons

► Eligible duties and taxes in respect of inputs held in stock available as credit to taxable

person switching over from compounding

► Transitional credit available generally only if both laws permit and invoice is not more than 12

months old

► No tax payable on goods removed/despatched earlier but returned within 6 months after the

introduction of GST

► Proceedings under earlier law to be conducted under old law

Transitional Provisions


► No Excise Duty at the time of Manufacture & GST will be applicable on “SUPPLY”. Will be

great relief to all the Manufacturers. Cenvat credit / VAT carried forward in return allowed as

ITC under GST

► Reduction in cascading effect ( Like earlier VAT was charged on Value + Excise amount)

► Hassle Free Supply of Goods _ because on no Entry Tax/ Octroi

► Increased Working Capital Requirements (Because Branch Transfer will be treated as supply)

► Free Supplies & After Sale discount will be burden on supplier

► Valuation of Self Supplies required clarity

► Pre packaged products for retail consumption valued on MRP leading higher cost price which

is unlikely in GST

► Reduction of classification disputes

Impact of GST on Manufacturing Sector


► Reduction in Cost because of cross input tax credit available

► No cascading effect will reduce cost & ultimate benefit to customer

► No need to open multiple branches in different states as claim of interstate purchase &

interstate is available now

► GST compliance will be burden for small traders & retailers, Considering higher no. of returns

and monthly credit matching concept

► Filling of monthly returns with purchase & Sales monthly cross examination helps to curb

circulations of dummy purchase and sales invoices in the market

Impact of GST on Traders & Resellers


► Services will be costlier but free flow of ITC may curtail the cost to some extent

Example : -

“Services provided by beauty parlour in which goods are used to provide the service to the client,

however its providing output service and not trading in goods can not claim input credit on VAT

paid on that products”

► Number of filing return will increase as against only two half yearly returns in current indirect

tax regime

► Centralized Registration will become Decentralized Registration in GST ( Will be tough for few

industries like Telecommunication Industry)

► Services are often delivered through third party vendors and hence, determining point and

time of supply is ambiguous.

► Reverse and partial charge mechanism likely to continue under GST

Impact of GST on Service Sector


► With Constitutional Amendments, both CGST and SGST will be levied on import of goods and

services into the country.

► The incidence of tax will follow the destination principle(Place of supply rules).

► Tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed.

► Full and complete set-off will be available on the GST paid on import on goods and services.

► Thus, import of goods will attract BCD and IGST. It may be noted that import of

services, as against service tax at present, in GST regime, will attract IGST.

► Basic Custom Duty will continue to there under GST system. However, the additional custom

duty in lieu of CVD /Excise and the Special Additional Duty (SAD) in lieu of sales tax/VAT will

be subsumed in the import GST.

► The import of services will be subject to Central GST and State GST on a reverse charge

mechanism. In other words, the GST will be payable by the Importer on a self declaration

basis.

GST Impact on import of Goods & Services


► Export of Goods & Services= Zero rated (Tax-Free/Exempted)

► Lower Logistic cost by subsuming Octroi / Entry Tax

► Free flow of goods makes Exports faster

► Refund of GST paid on Input is also available.

► Overall Indian Products will be more competitive

Duty Drawback : -

Earlier there was no provision for duty drawback in GST, but after public & experts opinions,

provision of duty drawback has been made in GST which will be a big relief to the exporters.

GST Impact on export of Goods & Services




Other key issues

Key issues Under Current Law Under GST

Advances received Advances received from

customers not taxable

Advances received from

customers liable to GST

Sales return No such time limit under excise. To be returned before - 30th

September of the next financial

year or

To be returned within 6 months

under VAT to reduce the liability.

Filing of annual return (31st

December)

(whichever is earlier)

Stock transfers Stock transfer is currently

exempt from tax on submission

of Form F

Supply includes stock transfer

and will be taxable. This can

create cash flow problems

Transfer of Plant & Machinery CENVAT credit to be reversed

under Excise Law

Transfer of plant & machinery is

„Supply‟ and GST is applicable


Other key issues

How to (Re) Structure your business to get maximum benefit from GST

► Accounting will be the “KEY” for compliance

► Restructure your branches _ Now Inter state Sale & Purchase set off is available

► Restructure your warehousing Logistic & Supply chain management (Entry Tax & Octroi

removed)

► File your returns on time _ Profit will not be yours but yes loss is yours ( For Ex. You cant

forget to carry forward available credit)

► Track Credit mismatch data closely_ Reconciled it every month_ you will not get the credit if

your seller don‟t pay it


Conclusion

► Ensure that all the eligible credits available under Excise / VAT are filed in the last return

► The books of accounts reconcile with the returns filed

► All invoices / supporting documents are properly maintained

► Reconciliation of stocks lying at all locations along with the job worker

► Ensure that all invoices are received and payments are made before the cut-off date to avail

credit

► Assess the impact of GST on business and make necessary adjustments

► For industry, this is the time to kick start various activities such as impact analysis and transition

issues

► Getting ready with the compliance requirements will reduce the burden on the industry

► Industry also needs to gear up their IT systems

Be GST enabled on time


Contact us

Nikunj J. Parekh & Co.

Nikunj J. Parekh & Co. 116, Platinum Mall, Jawahar Road,

Opp. Railway Station,

Ghatkopar (East),

Mumbai 400 077, India

O: +91 22 4002 0019

M: +91 98198 16542

+91 98207 37225

E: [email protected]

[email protected]

W: www.njpc.co.in

mailto:[email protected]

Documents

Chartered Accountants · 2017. 6. 14. · GST – An overview GST is a destination based tax on consumption of goods and services.It is levied at all stages right from manufacture