GOODS & SERVICES TAX - PowerPoint Presentation

GOODS & SERVICES TAX – AS APPLICABLE TO SERVICES CMA N.P. VISWANATHAN

The Goods and Services Tax (GST) Council on May 19, 2017 finalised tax rates for all services, under the new indirect tax regime to be rolled out from July 1. Those services already exempted from tax, such as healthcare and education, will continue to enjoy the concession.  CMA N P Viswanathan

Four rates of GST have been prescribed by the Council, as follows :5% for services under Essential Services Rate12% for services eligible for Concessional R ates18% for services under a Standard Rate28% for services under Sin RatesOver and above 35 services identified, a 36 th Residuary service clause has been prescribed. CMA N P Viswanathan

5% Rate with ITC of Input ServicesTransport of goods by RailTransport of passengers by rail (other than sleeper class) Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India Transport of passengers by air in economy class CMA N P Viswanathan

Transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme Airport. ‘RCS Airport’ shall mean any airport (whether under the ownership of the AAI, State Governments, private entities or the Ministry of Defence, Government of India)licensed / approved by DGCA, for which the State Government and airport owner / operator have extended concessions / support measures as specified under NCAP(National Civil Aviation Policy) 2016 and presented under Section 2.1.2 of this Scheme. Leasing of aircrafts under Schedule II [5(f)] by a scheduled airlines for scheduled operations CMA N P Viswanathan

5% Rate without ITCServices of goods transport agency (GTA) in relation to transportation of goods [other than used household goods for personal use] Services of goods transport agency in relation to transportation of used household goods for personal use. Renting of motor cab (If fuel cost is borne by the service recipient, then 18% GST will apply)Transport of passengers, by- ( i ) Air conditioned contract/stage carriage other than motorcab ; (ii) a radio taxi. Supply of tour operators’ services CMA N P Viswanathan

5% Rate with Full ITCSelling of space for advertisement in print mediaServices by way of job work in relation to printing of newspapers CMA N P Viswanathan

12% Rate with ITC of Input ServicesServices provided by foreman of chit fund in relation to chit CMA N P Viswanathan

12% Rate with Full ITC but no refund of overflow of ITC Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly. [The value of land is included in the amount charged from the service recipient] CMA N P Viswanathan

12% Rate with Full ITCTransport of goods in containers by rail by any person other than Indian Railways Transport of passengers by air in other than economy class Supply of Food/drinks in restaurant not having facility of air-conditioning or central heating at any time during the year and not having licence to serve liquor. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having room tariff Rs.1000 and above but less than Rs.2500 per room per day Temporary transfer or permitting the use or enjoyment of any Intellectual Property (IP) to attract the same rate as in respect of permanent transfer of IP. CMA N P Viswanathan

Standard Rate of 18% with Full ITCSupply of Food/drinks in restaurant having licence to serve liquor Supply of Food/drinks in restaurant having facility of air-conditioning or central heating at any time during the year Supply of Food/drinks in outdoor catering Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes where room tariff of Rs 2500/ and above but less than Rs 5000/- per room per day Composite supply of Works contract as defined in clause 119 of section 2 of CGST Act CMA N P Viswanathan

Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal , shamiana or any other place, specially arranged for organizing a function) together with renting of such premises Services by way of admission or access to circus, Indian classical dance including folk dance, theatrical performance, drama CMA N P Viswanathan

28% Rate with Full ITCServices by way of admission to entertainment events or access to amusement facilities including exhibition of cinematograph films, theme parks, water parks, joy rides, merry-go rounds, go-carting, casinos, race-course, ballet, any sporting event such as IPL and the like; Services provided by a race club by way of totalisator or a licensed bookmaker in such clubCMA N P Viswanathan

GamblingSupply of Food/drinks in air-conditioned restaurant in 5-star or above rated HotelAccommodation in hotels including 5 star and above rated hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, where room rent is Rs 5000/- and above per night per room CMA N P Viswanathan

Same rate of GST and Compensation Cess as on supply of similar goods 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 (supply of service) to attract the same GST rate and compensation cess as applicable on supply of similar goods which involves any transfer of title in goods (supply of goods). Any transfer of right in goods or of undivided share in goods without the transfer of title thereof (supply of services) to attract the same GST rate and compensation cess as applicable on supply of similar goods which involves any transfer of title in goods (supply of goods). CMA N P Viswanathan

Supply consisting of transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed (supply of goods): value of leasing services shall be included in the value of goods supplied. Residuary Clause : All other services not specified elsewhere @ 18% with Full IC CMA N P Viswanathan

ServiceTax Exemptions to be contd. in GSTAll the 82 services currently exempt under Service Tax are retained under GST too. There is only one addition to the list of exemption and that is : Services provided by the Goods and Services Tax Network (GSTN) to the Central Government or State Governments/Union Territories for implementation of Goods and Services Tax (GST)CMA N P Viswanathan

Status of AbatementsThere is no mention anywhere regarding abatements currently granted under the Service Tax provisions of Finance Act, 1994.It is presumed, they cease to exist under GST regime. In the pre-GST regime, in case of integrated, composite nature of works contracts, on many occasions, it was found that the value of goods and value of services became very difficult to be determined. Hence the system of abatement prevailed.Under GST-regime, there is no need to bifurcate the value between goods and services as the rate of tax applicable is composite in nature. That may be the reason for doing away with the abatements. CMA N P Viswanathan

Under the GST regime, since the GST paid is fully available as ITC to the seller, he is expected to pass on the benefit of such ITC to his customers. This will ensure that there is no undue increase in prices because of the higher composite rate of GST in certain instances.This is supposed to be voluntary action by the beneficiaries. However, a provision has been included in the CGST Act u/s 171 to ensure that such benefits are passed on. CMA N P Viswanathan

Taxable Person Importing Services From a Related PersonImport of services by a taxable person from a related person or from any of his other establishments outside India, for business purposes, will be treated as supply.For example, ABC Inc. is incorporated in the US by A Ltd. along with B Ltd. in India. Services are imported by B Ltd from ABC Inc. without any consideration, the import will be deemed to be a supply. GST will be paid by B Ltd. on reverse charge basis. CMA N P Viswanathan

Input Service Distributor under GSTThe concept of Input Service Distributor under GST and related laws have been kept aligned to continue the existing position. Under current tax regime the definition of Input Service Distributor includes : an office of the manufacturer or producer of final products or provider of output service which receives invoices issued under rule 4A of Service Tax Rules, 1994 towards purchase of input services issue invoice, bill or challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider. Hence , the available CENVAT to ISD is distributed by it to its units and outsourced manufacturers. CMA N P Viswanathan

Input Service Distributor under GST Model includes An office of the supplier of goods and / or services which receives tax invoices issued under section 28 towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of CGST ( SGST in State Acts) and / or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above The definition and procedural compliance are quite similar under both the models with the only few differences. CMA N P Viswanathan

Differences under both the models:ISD may issue document to an office bearing the same PAN as that of ISD. Unlike existing model, credit cannot be distributed to outsourced manufactures or service providers. The reason could be due to the shift of taxable event from manufacture to supply. The tax liability would arise at the time of supply which would be ultimately paid by ISD on utilization of available input tax credit. CMA N P Viswanathan

Registration and filing of Returns under GSTMigration of existing registration would not apply to ISD, hence it is required to apply afresh for registration. Here it is worth a note that a tax payer may apply as a “Supplier of Service” and an “Input Service Distributor” simultaneously unlike the current scenario. Separate registration number would be provided for this application.In case of being registered as an ISD, return is to be filed by 13 th day of the succeeding month whereas for being registered as Supplier of Service return is to be filed by 20 th day of the succeeding month. CMA N P Viswanathan

Distribution of Credit by Input Service DistributorThe credit of CGST, IGST and SGST shall be distributed, in the prescribed manner as per below chart : CGST as CGST IGST IGST as IGST CGST SGST as SGST IGST CMA N P Viswanathan

Conditions for distribution of Credit Prescribed documents must be issued to the recipients of credit containing prescribed details Amount of credit distributed must not exceed amount available to distribution Credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient; Credit of tax paid on input services attributable to all or more than one recipient of credit shall be distributed only amongst such or all recipient(s) to whom the input service is attributable and such distribution shall be pro rata on the following basis CMA N P Viswanathan

turnover in a State of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period; if some or all recipients of the credit do not have any turnover in their States in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributedCMA N P Viswanathan

Recovery of inappropriate distribution of credit by Input Service Distributor under GSTModel GST Law provides that the following shall be deemed to be inappropriate distribution of tax credit by Input Service Distributor: credit distributed to all or any recipient in excess to the amount available for distribution distributed in an inappropriate ratio to all or any recipient distributed in excess to what a supplier is entitled and shall be recovered from such recipient(s) along with interest, and the provisions of section 76 or 77 of CGST Act, 2017 shall apply for effecting such recovery. CMA N P Viswanathan

Transitional ProvisionsThe input tax credit on account of any services received prior to the appointed day shall be eligible for distribution as credit even if the invoice(s) is received on or after the appointed day.The amount of input tax credit carried forward in a return filed under earlier law would be allowed under Model GST Law GST regime provides for distribution of credit for such services only which were received prior to the appointed day but invoices are received later. Services which have been received after appointed date and invoice also received later, it would be booked under GST regime for the first time. and no transition provisions will apply here.Input tax credit would not need carry over of documents and no time limits for taking such credit CMA N P Viswanathan

Anti Profiteering Measure171. (1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. (2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. CMA N P Viswanathan

(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.It remains to be seen, how effective this provision would be under the GST regime. If not properly implemented, this may lead to a quantum jump in cost of services to input service receivers without corresponding output service. CMA N P Viswanathan

The biggest challenge, according to tax experts, is that of compliance. The government will have to ask for pre- and post-GST cost sheet of each product and calculate the pre-GST tax rate and post-GST tax rate for each and every item to understand the quantum of tax benefit that a supplier should get. There is still no clarity on how they will calculate the profit an organization made, will it be net basis or gross basis, a body will be needed to govern the whole process and for how long and how minutely will they be monitoring businesses to understand whether benefits have been passed on . CMA N P Viswanathan

Role of Cost Accountants in ensuring compliance with anti-profiteering measureThis is where we Cost Accountants can play a lead role by introducing some certification provision to ensure compliance of this provision. The Government, both at the Centre and the States can utilise the expertise of the professional Cost Accountants in determining whether the reduction in tax is actually passed on to the consumers by the manufacturers / service providers.CMA N P Viswanathan

Services under Reverse ChargeAs in the case of current Service Tax regime, it is proposed to continue with the Reverse Charge Mechanisms for certain services.The only difference is that under GST, there is no proposal for part reverse charge mechanism. Wherever RCM is applicable, it will be 100%. The list of services that will be under reverse charge as approved by the GST Council is given below : Sl. No. Nature of Service Service Provider Service Recipient 1. Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than non- assessee online recipient Any person who is located in a non-taxable territory Any person located in the taxable territory other than non- assessee online recipient (Business Recipient) CMA N P Viswanathan

Sl.No. Nature of ServiceService Provider Service Recipient 2. Services provided or agreed to be provided by a goods transport agency (GTA) in respect of transportation of goods by road Goods Transport Agency (GTA any factory registered under or governed by the Factories Act, 1948; any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; any co-operative society established by or under any law; any person registered under CGST/SGST/UTGST Act; any body corporate established, by or under any law; or any partnership firm whether registered or not under any law including association of persons. Casual taxable person CMA N P Viswanathan

Sl.No. Nature of ServiceService Provider Service Recipient 3. Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly An individual advocate or firm of advocates Any business entity 4. Services provided or agreed to be provided by an arbitral tribunal An arbitral tribunal Any business entity 5. Sponsorship services Any person Any body corporate or partnership firm 6. Services provided or agreed to be provided by Government or local authority excluding,- renting of immovable property, and services specified below- ( i ) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers Govt. or local authority Any business entity CMA N P Viswanathan

Sl.No. Nature of ServiceService Provider Service Recipient 7. Services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate; A director of a company or a body corporate A company or a body corporate 8. Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business An Insurance Agent Any person carrying on insurance business. 9. Services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company A recovery agent A banking company or a financial institution or a nonbanking financial company. 10. Services by way of transportation of goods by a vessel from a place outside India up to the Customs Station of Clearance in India A person located in non-taxable territory to a person located in non-taxable territory Importer as defined under clause (26) of section 2 of the Customs Act, 1962. CMA N P Viswanathan

Sl.No. Nature of ServiceService Provider Service Recipient 11. Transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works. Author or music composer, photographer, artist, etc Purchaser, Music Company, Producer 12. Radio taxi or Passenger Transport Services provided through electronic commerce operator Taxi Driver or Rent-a-Cab Operator Any Person - 100% by Electronic Commerce Operator CMA N P Viswanathan

Time of Supply of ServiceSection 13 and Section 31(2) of CGST Act, 2017 supported by Rule 2 of GST Invoice Rules lay down the provision with regard to the time of supply of service, for reckoning GST. The time of supply of services shall be the earliest of the following dates, namely:— (a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier ; or ( b) the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or CMA N P Viswanathan

(c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply: Provided that where the supplier of taxable service receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier , be the date of issue of invoice relating to such excess amount. CMA N P Viswanathan

Explanation.––For the purposes of clauses (a) and (b)–– (i) the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment; ( ii) “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier. CMA N P Viswanathan

In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:–– (a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or ( b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier CMA N P Viswanathan

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply: Provided further that in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier. The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value. CMA N P Viswanathan

Section 31(2) of CGST Act lays down that a registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed. Rule 2 of GST Invoice Rules, 2017 lays down that the invoice in case of taxable supply of services, shall be issued within a period of thirty days from the date of supply of service: Provided that where the supplier of services is an insurer or a banking company or a financial institution, including a non-banking financial company, the period within which the invoice or any document in lieu thereof is to be issued shall be forty five days from the date of supply of service: CMA N P Viswanathan

Activities to be treated as Supply of ServicesClause 5 of Schedule II to CGST Act, 2017 treats the following as Supply of Services :(a) renting of immovable property; (b) 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, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. CMA N P Viswanathan

(c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and ( f) 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. CMA N P Viswanathan

Composite supplies treated as Supply of ServiceClause 6 of Schedule II to CGST Act, 2017 treats the following composite supplies as supply of service :(a) works contract as defined in clause (119) of section 2; and (b) supply, by way of or as part of any service or in any other manner whatsoever, 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. CMA N P Viswanathan

ACTIVITIES OR TRANSACTIONS WHICH SHALL NOT BE TREATED AS SUPPLY OF SERVICES Section 7(2) of CGST Act supported by Schedule III to the Act lays down that the following shall not be treated as supply of services : 1. Services by an employee to the employer in the course of or in relation to his employment. 2 . Services by any court or Tribunal established under any law for the time being in force. (the term "court" includes District Court, High Court and Supreme Court .) 3 . (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities; CMA N P Viswanathan

(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause. 4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased. CMA N P Viswanathan

Thank youCMA N P Viswanathan