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GOODS AND SERVICE TAX (GST)
A TAX TRANFORMATION
PRESENTATION TO
SHRI ARUN JAITLEY
HON’BLE UNION MINISTER OF FINANCE,
DEFENCE & CORPORATE AFFAIRS
GOVERNMENT OF INDIA
BY
THE SOUTHERN INDIA CHAMBER OF COMMERCE
AND INDUSTRY
30TH JULY, 2017 CHENNAI
INDEX
Sl.
No. Sector Page No.
Introduction
1 Automotive 1
2 Areca Palm Leaf Products 2
3 Construction 3
4 Contraceptive 4
5 Elevator 5
6 Entertainment 7
7 Fertilizer 8
8 Flour Milling 10
9 Granite 11
10 Information Technology 12
11 Leather 14
12 Logistics 17
13 MSME 21
14 Paper & Paper Board 22
15 Pumps 23
16 Recycled Plastics 24
17 Restaurant 25
18 Safety Matches 26
19 Tractor & Accessories 27
20 Wet Grinders 28
21 Key Issues requires clarification 29
Congratulatory Note
Interactive Meeting
with
Shri Arun Jaitley
Hon’ble Union Minister of Finance
INTRODUCTION
The Southern India Chamber of Commerce & Industry (SICCI) has crossed a century of serving
the Trade & Industry and is one of the premium organizations projecting the cause of the economy
of the nation. SICCI is the founder of FICCI New Delhi. All the Past Presidents of FICCI from the
south are being nominated by this chamber. Leading industrialists are in the board of SICCI
SICCI is proud to be associated with the first of its kind post GST interactive session with the
Hon’ble Finance Minister.
We are indeed glad that the country is governed by visionaries – Hon’ble Prime Minister Shri
Narendra Modi, the Finance Minister and a host of other highly able Minsters.
Post-independence, there has been two mega / most significant revolutionary vision statements of
the country both focused for economic prosperity – one on infrastructure and the other for
taxation.
Two greatest / most significant transformations of the country:
1. Golden Quadrilateral and
2. Goods and Service Tax
Golden Quadrilateral – commenced by Shri Atal Bihari Vajpayee then Prime Minister in Jan
1999, it changed the complexion of the infrastructure of the country. It converted the connectivity
in to –
One Nation One Road.
Goods & Service Tax - To implement such a policy initiative in country of this size, an economy
of this magnitude with diversified political character needs courage and vision – both are available
the PM and the FM. A tax reform that transforms the country to:
One Nation, One Tax, One Market.
The common denominator for both mega achievements is Nation building – that too one Nation.
We in SICCI are indeed proud of being a part of the historical and marks and to have the privilege
of co-hosting this event for the first time in the country.
On a request to our Members to share their views, while there was a general appreciation of the
tax reforms across the board, inputs are attached as a sectorial compilation of concerns as expressed
by them which SICCI is confident will receive the attention that it deserves.
Sector: I Automotive Sl. No Concern shared
1 Leasing of Vehicle – GST Rates at par with GST rates that apply for supply of vehicles.
Typically, 43% on leasing charges is heavy burden with no certainty on Credits related to
such cases.
2 Employee related credits - GST law conceptually contemplated seamless credit
mechanism. However, still there is no clarity on employee related credits such as cab rental
etc.
3 Transition stock benefit for Duty paid vehicles - Many times, Ex. Duty has to be paid on
removal for testing to ARAI etc. and such vehicles lying in stock at the point of transition is
capable of being sold in GST regime. However, this would have double duty impact, if
GST credit on opening stock of FG is not allowed. There is no such provision.
4 After Sales Service & Warranty - Industry position is taken since legal position gives room
for enough interpretation. This is being treated as composite contract and separately GST is
considered for material and labour portion respectively.
5 Tooling amortsation and FoC stock lying with vendors - This is also open for
deliberations.
Sector: II Areca Palm Leaf Products Sl.
No
Concern shared
1 This product is 0 classified under HS code 46021919 and being taxable at 12% in the present
GST. Under VAT Act this product is exempted with Commodity Code of 524.
2 The Areca Nut Palm leaves product mostly are made by women Self Help Group and the
margin and trading are very low, but very useful for environment.
Areca leaf plate is Natural, Bio-degradable, Eco friendly and will contribute pollution free
world. It is manufactured by un-organized sector as small cottage industry and this product is
also an alternative to plastic materials.
3 Suggestion: The industry requests the Government to kindly consider and grant exemption to
this Eco-friendly product under GST regime.
Sector: III Construction Sl. No Concern shared
1 Operating lease: The interstate movement of the leased assets is liable to GST. The leased
assets are possessed & controlled by the lessee. The challenge is who is liable for the
payment of tax on movement of the leased assets from one state to another state. Lessor
will pay GST on the lease rental under IGST. Whether the movement of assets from one
state to another is taxable? If so who has to pay the IGST? On what value?
2 Transacting with unregistered dealer: The tax is liable under RCM and whether all the tax
paid under Reverse Charge basis can it taken as ITC for all cases?
3 For execution of projects contract provides for separate schedule for supply of goods and
separate schedule for erection & commissioning. Clients’ contracts condition provides for
payments term for supply of goods is as under:
10% advance along with the contract
70% on receipt of materials
10% on completion of erection & Commissioning
5% on Pre-Acceptance certificate
5% on Final completion & handing over.
Pre GST regime the supply Invoice will not attract VAT as covered under E1 sale
exemption under CST Act. Post GST this transaction will attract GST.
In the above circumstances whether GST to be raised for the percentage as agreed in the
contract payment terms? Or on the 100% value of supply of goods?
As the payment is staggered for more than one year the question of reversal may also attract
if invoice is raised for 100%.
Sector: IV Contraceptive Sl. No Concern shared
1 Male Contraceptives are grouped under 0% tax rate and hence there is no output tax for this
product.
However, there are increases in the input raw materials cost due to increase in GST rate vs
the earlier ED + VAT rate.
a. Natural Rubber Latex – from 2% VAT to 5% GST
b. Silicone Oil from 14.5% (ED +VAT) to 18% GST
c. Foil from 14.5% (ED & VAT) to 18% GST
Unfortunately, due to non-availability of Input Tax Credit (ITC) for exempted products the
cost of production is increasing and thus may result in increase in cost of the end product to
customer.
It is suggested to have nominal output tax rate for Contraceptives thus enabling the
manufacturer to availing the input tax credit and pass on those benefits to the ultimate
customer instead of increasing the final price to the customer.
2 Since there are increases in input raw material cost due to non-availability of Input Tax
Credit for Contraceptives there is an increase in production cost. This will necessitate
increase in final price of the product.
3 Suggested Relief: Need to have a provision for availing input tax refund for the taxes paid
in inputs to avoid increase in product cost.
4 Unable to register for Input Service Distributor (ISD) in spite of repeated attempts from the
last week of June 2017.
Sector: V Elevator Sl. No Concern shared
1 During implementation of GST, the elevator industry is facing certain practical
difficulties with regard to credits that have to be passed on to the customers. While
the intention is understood, the present law does not contain suitable provisions.
Difficulties faced by the elevator industry are enumerated for remedial action /
solution.
2 There is a certainty post implementation of GST but difficulty is mainly on the
transition provisions. In the elevator industry the projects are normally spread over a
period of year or more as it involves design, manufacture, supply and installation.
These activities also depend upon progress of the civil constructions where these are
to be installed.
3 Prior to GST, the activity of supply and installation of elevator was treated as a works
contract and accordingly output tax was paid. For these transactions, VAT and service
tax were applicable. Since Elevator is an immovable property, there was no excise
duty leviable.
4 Elevator consists of two broad categories of components. About 50% of the
components are manufactured in the factory on which excise duty was paid on self-
consumption and remaining 50% represented bought out components which were
taken to sites for installation.
5 As elevator is transferred to the end customer as an immovable property, excise
duty was not levied on output whereas the manufactured input and bought out input
suffered excise duty.
Under the GST Act, the transition provision under Section 140(1) allows CENVAT
credit to be carried forward to GST, there is no express provision to take credit
of excise duty paid and cleared by us on self-consumption basis which are available
in work sites under our control and also for the bought out components taken to sites
which have also suffered excise duty.
6 While Section 140(3) of the GST Act enables credit to be taken by certain categories
of registered persons, the same does not cover the category of persons registered under
the existing laws prior to GST. While it is a fact that manufactured components and
bought out components have suffered excise duty, there is no enabling provision to
take credit of such duties for passing on to customers. Our intention is to pass on the
credit, but we are unable to take the credit for subsequently pass it on to the
customers. Now customers are demanding that the excise duty paid / involved in such
components be passed on to them. In the absence of suitable provisions customers are
being burdened with incremental tax impact on account of GST.
7 While Section 140(3) has included the works contractors availing the benefits under
notification 26/2012, the same benefit has not been extended to the works contractors
covered under Rule 2A of Service Tax (Determination of Value) Rules 2006. We also
wish to bring to your kind attention that such components not only suffer excise duty
but also entry tax in States wherever applicable. In the absence of enabling provisions,
both these tax elements already included in the inputs could not be passed on resulting
in dual taxation burdening the end customers. Our customers have already started
raising their concern on increased tax incidence.
8 Suggested Relief: Consider the difficulties faced by the industry and give suitable
directions for enabling to avail the benefits and pass it on to end
customers. While GST is a great step forward for the country and industry we
will learn the finer points as we move along. It's important that the end users get
the clarity and the benefits.
Sector: VI Entertainment Sl. No Concern shared
1 Production of film attracts 18% of GST on all services used like Services of actors,
directors, music directors, Music Studios, Post production studios, marketing
agencies, Work for the hire production services, etc.
2 After the completion of the said film, and when the producer sells the film on
copyright basis, gets only 12% on the sale of copy Rights. So there is a wide gap of
6% between the input and output credit. Also the Producer has to pay the 18% GST
on every payment from starting of the film, which involves the huge amount of cash
flow for the producer.
3 Most of the Indian producers do not get bank credit and as a result of it they have to
seek only the private funding at a very high rate of interest and the sale of copyright
takes place only after completion of the film.
4 Since the percentage of success is only 10%, the producers’ money gets blocked up
in the coffins of Government in the form of GST, which could be adjusted by the
producer only in his future films.
Suggested Relief: Reduce the GST rate as output tax of 18% to 12% on par with
already mandated 12% of input tax and oblige.
Sector: VII Fertilizer Sl.
No
Concern shared
1 With the reduction of Fertilizer GST rates from proposed 12% to 5%, benefit on account of
input duty reduction have been passed on by the Industry to the farming community -
Downward revision in MRP of Fertilizers from 1st July onwards.
2 Notified GST rate on inputs viz Phosphoric Acid, Ammonia and Sulphur continues to remain
at 18%, resulting in inverted duty structure and high credit accumulation for the domestic
manufacturing industry (~Rs 4000/ ton for DAP) – Severe strain on working capital
requirement.
3 Over the years, Government has encouraged Indian industry to invest in Joint Venture (JV)
projects abroad for securing supply of Phosphoric acid. Indian companies have made
investments in such JVs in Morocco, Jordan, Senegal, Tunisia and South Africa to achieve
self-sufficiency in acid needs. The 18% GST on phosphoric acid will render the domestic
production unviable, impacting the JV operations adversely.
4 Imported DAP to attract only 5% IGST resulting in negligible impact due to accumulated
credit on imported fertilisers vis a vis 18% on input raw material by domestic manufacturers
– Contrary to ‘Make in India’, current rate structure beneficial to importers.
5 Credit Accumulation Scenario – Domestic Industry v/s Imports (in Rs/MT for DAP)
Tax rate on inputs
Domestic Manufacturers
Phos-Acid 18%,
Ammonia 18%
Imported DAP
IGST 5%
Input Tax Credit 4685 1349
(Tax paid on inputs)
GST on DAP 1030 1030
Accumulated input tax Credit 3655 319
Out of which :
Due to higher rate of GST on
inputs 2331 -
Due to subsidy on DAP 1324 319
6 Uncertainty over refund timings and treatment of subsidy component, which currently forms
30% of the value of the finished product
Domestic Industry is already reeling under the adverse effect of custom duty structure. GST
regime in its current form will make domestic player uncompetitive with respect to importers
and expose the country to the international uncertainties.
7 Suggested Relief: In view of the above issues, following corrective actions will improve the
competitiveness of the domestic fertilizer manufacturing industry and reduce its working
capital needs:
- Reducing GST rates for fertilizer inputs especially Phosphoric Acid from current
18% to 5%. Though phosphoric acid currently appears under ‘Inorganic Chemical’
chapter under the GST rate schedule attracting a GST rate of 18%, the entire fertilizer
grade acid imported into India is consumed exclusively by the fertilizer manufacturing
industry. Considering its importance to the domestic fertilizer industry and its minimal
chances of diversion for non-agriculture purposes, GST rates on Phosphoric Acid can be
revised to 5%. Similar exemptions have been given to other product categories as well
and same can be extended for Phosphoric Acid. This will bring the GST rates on acid
similar to its raw material rock phosphate, which is currently categorized in 5% GST
bracket.
8 Accelerated refund of accumulated credit similar to the refund mechanism provided in the
GST Act for exporters viz provisional refund of 90% within 7 days.
Clarity on treatment of subsidy component in the new system, with refund to be taken into
account to avoid disallowance of input credit.
9 In absence of the above corrective measures, the additional burden due to high credit
accumulation and interest cost currently being borne by the industry may result in increase in
prices of fertilizers, which will be contradictory to the Government’s approach to make GST
anti-inflationary.
Sector: VIII Flour Milling Sl. No Concern shared
1 Wheat Flour is a commodity with a very thin margin and is very price sensitive in market.
GST has imposed 5% tax on registered, trade mark and has left the unregistered Trade mark
products with 0% percentage tax (Nil).
5% is a big margin on a commodity like wheat flour as it is the food for common man and
millers work on very thin margin. Tax on flour may also increase to common citizens.
It is assumed that a GST of 5% has been imposed on registered brand wheat flour by
oversight.
2 Before GST, there was VAT for wheat products only in Tamil Nadu @ 5% and there was
no VAT in Karnataka, Kerala, and Puducherry U.T. The trade in Karnataka use to dump the
wheat flour mainly Maida into Tamil Nadu with bogus bills as though they are being sent to
Puducherry and enjoyed tax exemption.
By imposing tax on registered brand, GST has made the illegal trade mentioned above legal.
3 Suggested Relief: Exempt all flour from GST since it is the basic food/nutrition source for
the mass consumption and also since registered brand alone does not contribute to any extra
income to milling industry.
On the contrary, the imposing of 5% tax will make the industry sick and there would be a lot
of disparity if we allow the unbranded goods sold without any tax.
Margins are high only to branded goods and not for the registered trade mark goods. There
will be no uniformity and this will affect the supply chain.
It has to be mentioned here that bread has been exempted from GST whereas the flour, Maida
which is the only raw material for bread is taxed at 5%. Hence, the bakeries will not be able
to have any input credit which will increase the cost of bread.
Waive tax on registered trade mark wheat flour, since branding is difference from registered
trade mark.
Branding is mostly done by FMGC companies and multinationals only. Hence flour packed
in 10 kgs and below may be treated as branded wheat flour as they cater to upper segments.
Sector: IX Granite Sl. No Concern shared
1 As per notification 64/2017-Customs Dt. 05.07.2017 SEZ Units are exempted from paying
IGST on Imported Inputs whereas 100% EOU’s are not. Hence same status to be
maintained to EOU’s as well.
2 28% GST on finished Granite products are very high if we make sales in DTA (Earlier it
was only 14.5%).
Sector: X INFORMATION TECHNOLOGY
Sl. No Concern shared
1 The revised proviso to Rule 1 of the GST Registration Rules provides that all units in a
SEZ would have to obtain a separate registration.
However, owing to the language of the proviso, an ambiguity has emerged as to whether
(a) It allows all units in a particular SEZ to obtain a single registration; or
(b) It allows all SEZ units in a State to obtain a single registration.
Further, as per Rule 4(1)(e) of Input tax credit rules, CGST or SGST distributed by Input
Service Distributor (ISD) to units (including SEZ units) within the same state as that of
ISD would need to be distributed only as CGST or SGST.
2 Suggested Relief: It is recommended that a clarification be issued that all SEZ
units in a State can obtain a single registration. Alternatively, since all supplies to
SEZ are zero rated and substantially all of the supplies from SEZ would be
exports and it is under the purview of IGST, one single registration for all SEZ
units under the same PAN independent of where they are located may be
considered under section 148 of CGST Bill.
SEZ used to enjoy 100% exemption on all inputs by submission of form A1 and
A2. Under GST SEZ supply is termed as “Zero rated supply” . Under this clause,
massive compliance have been puton vendors dealing with SEZ of prior filing of
bonds various forms against Zero rated supply.
Suggestion: Since the supplies to SEZ units are zero rated and under the purview
of IGST, ISD distribution of all types of credits to SEZ units may be permitted
only as IGST and a refund mechanism for SEZ units may be enabled.
4 IT companies / Export units now have to first pay taxes to its vendors and then claim
the refund of Input, ab-initio exemptions like Purchases/procurements against
various declarations (H forms, I forms etc.) are no more available in GST, which is
leading to heavy burden on working capital.
Suggestion: The industry feels that the procedure should be simplified to overcome
the working capital issues.
5 3) Dealing with unregistered vendors now leads to payment of taxes by the
company (registered vendor). Most of the consultants with IT companies are
unregistered vendors and thus company will have to pay tax on their behalf and
claim a refund. The minimum exemption clause does not apply to such unregistered
vendors dealing with registered vendors.
Suggestion: There should be a minimum exemption clause to unregistered vendors
dealing with registered vendors.
6 On duty-free exports, the company now has to do compliance by providing forms
and bank guarantees against every export. This will increase the amount of
compliance required to be done and put an additional burden in processing.
Suggestion: Industry feels that compliance formalities should be simplified against
providing bank guarantee, forms etc., against each and every export.
Sector: XI Leather Sl. No Concern shared
1 The Common Effluent Treatment Plant (CETP)has been established under the
directions of Supreme Court of India.
2 National Environmental Engineering Research Institute, Nagpur (NEERI) to send a
team of experts to examine the feasibility of setting up “Common Effluent
Treatment Plant” hereinafter referred to as “CETP” for the “SMSE” tanneries so as
to bring all tanneries under the one umbrella of such treatment plants in various
place.
3 CETP facilitates reducing the dependence on ground water resulting in an improved
eco-system
Leather industry ensures direct and indirect employment to more than 2 lakhs persons,
most of whom are below the poverty line and 30% are women mostly from rural
families.
4 CETP had exemption from levy of service tax so far under Notification No. 42/2011-
Service Tax as amended by Notification 1/2012 ST dt 17.03.2012 and Notification
25/2012 ST dated 20.06.2012.
5 Under GST regime, exemption list does not contain provision for exemption to
Common Effluent Treatment Plant’s supplies. Consequently CETP is burdened with
CGST/SGST at 18% on:
a. Maintenance and incidental charges collected by CETPs from its tanner-
members and
b. Reverse Charge Mechanism supplies procured from Unregistered
Members.
6 But similar placed other entities have been given total exemption under Notification
12/2017 Central Tax (Rate) dt 28.06.2017 as listed below:
(i) Sl No1: Services by an entity registered under section 12AA of the
Income-tax Act, 1961 (43 of 1961) by way of charitable activities.
(ii) Sl No78: Services provided by operators of the common bio-
medical waste treatment facility to a clinical establishment by way
of treatment or disposal of bio-medical waste or the processes
incidental thereto.
7 Further lower rate of GST at 5% has been levied on the renewable energy devices like
(a) Bio-gas plant, (b) Solar power based devices, (c) Solar power generating system,
(d) Wind mills, Wind Operated Electricity Generator (WOEG) and (e) Waste to
energy plants/devices.
8 In addition, Services by way of job work in relation to-Processing of hides, skins and
leather falling under Chapter 41 of HSN attracts GST rate 5% with full ITC benefit.
9 Suggested Relief: For the reasons stated above, it is most respectfully prayed that
the Central Government/GST Council may be pleased to reduce the GST rate
from 18% to 5% (with ITC benefit) u/s 9 read with 11 (1) of the Central Goods
and Service Act 2017 to the Association/Companies managing the CETPs
engaged in the activity of “treatment of effluent” to its members/public and
render justice.
10 Request to reduce GST for finished leather and composition leather from 12% to 5%
and Request to reduce GST for Footwear from 18% to 5%. (Job Work).
11 GST for finished leather (which is a ready-to-use leather for manufacturing value
added products) has been fixed at 12%. The distinction between semi-finished leather
and finished leather is very little. It is also difficult to identify them on appearance
basis. Hence we wish to bring to your kind attention the following justification for
lowering the slab to 5% from 12% GST for finished leather:
CLASSIFICATION OF FINSIHED LEATHER -DIFFICULTIES AND
JUSTIICATION.
• The GST rate on Tanned and Crust Leathers falling under HS Codes 4104,
4105 and 4106 (which are only a semi-finished leathers but look like
finished leather) is 5% while GST rate for finished leather (falling under
HS Codes 4107, 4112, 4113, 4114) and Composition Leather ( HS Code
4115) is 12%.
It is very difficult to differentiate Tanned and Crust Leathers from finished leather
through mere physical examination and can be determined only through testing in a
laboratory. Hence, having 5% GST for tanned and crust leathers and 12% for finished
leather will result in enormous product classification dispute by the field formations
not only for imports but in the domestic market sale as well. This will result in
avoidable litigation.
• Though finished leather is a value added product when compared to raw hides and
skins and semi-finished leather, it is still the basic raw material for making other
value added products.
• In addition, finished Leathers manufactured in the country are mostly consumed
in value added products like shoes, bags, wallets., etc., which are exported from
the country or exported as finished leather itself. As per our analysis, out of 3
billion sq.ft. of finished leathers available in the country, 2.51 billion sq.ft is used
in export products or exported as finished leather. Thus, about 83% of finished
leather available in the country is used in export segment and hence fixing 5%
GST for finished leather will not result in any revenue loss to the Government as
exports are zero rated under GST.
• Leather is also a labour intensive and export oriented similar to that of textiles and
hence, 5% rate may be fixed for finished leather and composition leather at par
with textiles.
12 Suggested Relief: For the reasons stated above, it is most respectfully prayed that
the Central Government may be pleased to reduce the GST for finished leather
(HS Codes 4107, 4112, 4113 and 4114) and Composition Leather (4115) from
12% to 5% as this would not only enhance price competitiveness of the industry
but also avoid additional working capital blockage on account of paying tax and
seeking refund.
13 FOOTWEAR - CHAPTER 64 - footwear including Uppers
• The GST rate on Footwear with leather sole falling under different HSN
Codes, 6403 1910, 1990, 2011 to 2029, 51 11 to 5190, and 6406 1010 to 90
90. are fixed at 18%.
• Tamil Nadu is the second largest footwear manufacturer in India after Agra in
Uttar Pradesh, employing and providing jobs to downtrodden and weaker
section of the community, specially women workforce . The total export of
footwear including full shoes and Uppers forming part around 22% of the
overall export from Tamil Nadu. The share of Tamil Nadu is 34% of overall
total export of India.
• Most of the manufacturers are Micro and Small Scale industry and are located
in rural areas giving employment to villagers. These SMEs' do the job work
with low working capital and their business will come to standstill if the GST
is levied at higher rate.
• The GST @18% will affect the cash flow and working capital of these Micro,
Small Scale Manufacturers.
14 Suggested Relief: Central Government and the Council may be pleased to reduce
the rate of GST from 18% to 5% to help the industry to avoid additional working
capital blockage on account of paying tax and then seeking refund.
Sector: XII Logistics
Sl.
No
Concern shared
1 One invoice per transaction
As per GST Law, each transaction should be covered by one invoice. In the airfreight sector,
each shipment that is transported on the services of various airlines are covered by one Air
Waybill (AWB). Therefore, the airlines should issue a separate invoice for each and every
AWB or transaction. Many airlines, including the national carrier Air India, have informed
that due to their internal issues – system limitations - propose to issue fortnightly statements
(referred to as a Cargo Sales Report (CSR)), covering multiple transactions in a fortnight.
The airlines have expressed their inability to issue individual invoices for each AWB. The
industry has informed the airlines that such a procedure would be violative of the applicable
GST regulations and will result in procedural non-compliance of GST laws.
By combining many transactions, the client /place / destination-specific nature of the activity
is lost. The airlines are also not covered by Section 31 (3) (f) and Section 9 (3) and (4) of
CGST Act, which permit issuance of a consolidated invoice for specified purposes. Hence,
they are ineligible to issue a consolidated invoice. It is also possible that in case of any error
in one of the transactions in a consolidated invoice which includes multiple transactions, the
agent will be denied full Input Tax Credit (ITC).
Suggestion: The airlines may therefore kindly be advised that compliance with the GST
Law requires them to issue a separate invoice for each AWB.
2 Zero Rating for Exports
The airfreight service for exports will attract 18% GST. Under the erstwhile Service Tax
regime, this service was Zero Rated. The additional levy of 18% under GST will increase
the cost of exports and is likely to have a negative impact on the export industry of our
country.
Suggestion: GST on airfreight export services may kindly be restored to service tax level of
zero as is the practice in many countries introduced GST – Australia, Canada, Malaysia,
Singapore, UK ….
3 Centralised Registration
The GST Law had made it compulsory for state-wise registration of all offices/branches of
airfreight agents. Consequently, the financial cost of business and compliance is likely to
increase substantially. Freight forwarders are service providers and over 95% of them are
SMEs, which will find it difficult to meet the additional financial burden.
Suggestion: Since the Union Government is encouraging SMEs, the industry requests that
the state-wise registration provision may kindly be reviewed and the airfreight agents may
be permitted the facility of centralized GST registration of their organisations.
4 GST on Freight Services provided to a Foreign Supplier of goods on CIF basis:
In the erstwhile Service Tax Law, the service provider used to bill to foreign supplier relating
to CIF consignments and the situation continues even under GST.
The service element of cost subjected to GST tax and once again, the goods suffers Customs
Duty + IGST, therefore service element taxed twice, especially on imports on CIF terms.
Since, the GST charged on service element i.e. freight and service receiver being an entity
located outside taxable territory, the tax is loaded on to the cost of goods or Indian service
provider forced to absorb the tax cost.
Suggestion: The industry requests to grant exclusion for those shipments wherein service
charges are realized in foreign currency and retain all other aspects of taxation under GST.
This transaction is taxed under GST as per Sec. 7(5)(c) of IGST Act, 2017.
5 Clarification for the term “Agency”, provided in Explanation 2 to Sec. 8 of IGST Act,
2017.
The Freight Forwarding Industry underwent a major change and slowly the Agent-Principal
relationship changed to Principal-Principal relationship. Eventually, all such freight
forwarders have assumed the risk of doing the business and converted themselves as network
partners of Shipping or Air Line.
The Freight Forwarders global network (an international association formed to build
worldwide network) is helping Indian Freight Forwarders to take up export and import
shipments, as the other Freight Forwarder in a foreign country will act as counterpart in
receiving the consignment and deliver it to the ultimate exporter or importer.
A Freight Forwarder in India will bill the freight forwarder in a foreign country for the
service provided for a cargo, that qualifies to be classified as “export of services” as defined
U/s.2(6) of IGST Act, 2017.
However, the term Freight Forwarding Agent is still prevalent in the Industry, as a common
parlance, whereas, the nature and relationship do not reflect the term “Agency”.
Explanation 1 to Sec. 8 of IGST Act, 2017
For the purposes of this Act, where a person has,-
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment
outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment
being a business vertical registered within that State or Union territory.
Explanation 2 to Sec. 8 of IGST Act, 2017
A person carrying on a business through a branch or an agency or a representational
office in any territory shall be treated as having an establishment in that territory.
Emphasis supplied.
Suggestion: As per the above explanation, the benefit of “export of services” may be
denied to the Indian Freight Forwarders and therefore, requesting Hon’ble Minister to look
into this submission and issue suitable clarification, to avoid unnecessary disputes.
Sector: Logistics Industry
Concerns flagged by: Association of Multimodal Transport Operators of India,
Sl. No Concern shared
1 On reading of 13(3)(a) services supplied in respect of goods which are required to be made
physically available by the recipient of services to the supplier of services, or to a person
acting on behalf of the supplier of services in order to provide the services:
The wording’s are required to be made available by the recipient of services – the recipient
of service is our Overseas Agent – he is not making the goods Physically available – The
person making goods available is the exporter who is not the client and not the recipient of
service - hence this Section cannot be applied when we are charging our overseas agent.
2 Our understanding of section 13.3 would mean that this is applicable when physical activity
is to be carried on goods like repair, packing, painting, polishing etc and not on supply of
services for the said goods transportation / movements of said goods for export as logistics
service provider to a recipient of service outside the taxable territory.
3 Suggested Relief: A clarification that such transaction that all activities listed being
transportation of goods where the final destination of goods is outside India will be covered
by Section 13 (9) of the IGST Act will dispel any apprehension or room for interpretations.
4 As freight forwarders we provide various services to our overseas customers. We seek your
confirmation, if any of these services provided in India to overseas customer do not fall
within section 13(3) to section 13(13), all such services will fall under section 13(2) and will
be treated as ‘Zero’ rated export services.
Sector: XIII MSME
Sl. No Concern shared
1 Composition Scheme – max turn over limit is 75 lakhs
But the supplier is not eligible to take any Input Tax Credit (ITC) .
They cannot charge 2% tax applicable in the invoice.
In that case the input cost on materials and consumables will go up and hence the
small and tiny industries may not be competitive in the market.
Suggested Relief: Some amount of ITC to be allowed for MSME who opt for
composition scheme.
Sector: XIV Paper & Paperboard Sl. No Concern shared
1 MEIS Scrips should be permitted to be used against payment of IGST on Imports.
2 For Student Note Books the GST Rate to be reduced from 12% to 5% as the student
community will be benefited.
3 Debit and Credit advises from the banks towards the service charges are not GST complied,
resulting the Exporters/Importers are unable to avail ITC.
Sector: XV Pumps Sl. No Concern shared
1 There are two types of compressor pumps viz Borewell Compressor pump and
Industrial Air Compressor.
2 Under GST 28% GST for air compressor pump and 18% for borewell compressor
pump. The borewell compressor pump is now categorized as “Other Pump” under
HSN Code 84131990.
3 The pump industries in Tamil Nadu are predominantely from the MSME sector and
lot of employment and livelihood particularly in the western part of Tamil Nadu is
depending upon this industry. Taxing at 28% will discourage the industry and this
industry will be critically affected.
4 Suggestion: We request that the rate for industrial compressor and borewell compressor
pumps should be fixed at 12%.
Sector: XVI Recycled Plastics Sl.
No
Concern shared
1 The GST for recycled plastic is fixed at 18% from 5.5%. This steep increase causes adverse
consequences for the environment and also affects the livelihood of rag pickers. This steep
increase is a sharp erosion of their earnings. During pre GST the rag pickers never face any
problem in carrying out their day to day living and earned their daily bread sufficiently.
After GST the 18% Tax on waste plastic has sparked a downward spiral in prices in the
recycling mark Post GST rag pickers encounter a steep fall in earnings as recyclers protect
margins, pay less for plastic waste.
2 Suggestion: In order to protect the environment, the Hon’ble Minister may kindly consider
revisiting the Tax to 5.5.% maintaining the status-quo.
Sector: XVII Restaurant
S.
No
Concern Shared
1. The GST Council has classified the restaurants under the service category and charged
different rates based on air condition as well as non-air condition.
The stand alone and middle-class restaurants (Party airconditioned) are now in GST grouped
together along with star category Hotels, Restaurants with liquor services and international
branded clauses of restaurants like KFC, MC Donald, Pizza Hut, etc.,
In ordinary stand-alone restaurants, common man will be burdened with 18% GST in the partly
A/C restaurant which is at par with the Star hotel customers.
This was also raised in the current rainy season of the Parliament and it was also noticed that
30%-35% of the business for the restaurant has already affected by this steep increase. The
middle-class people are actual sufferers by this high steep raised GST at present.
Suggestion: The industry requests that there should be a differential rate of duty structure
between partly airconditioned restaurant and star hotels. Further, for restaurants the GST
should be a flat rate of 5%.
Sector: XVIII Safety Matches
Sl. No Concern shared
1 Pre introduction of GST, for merchant exporter upon getting Form H, supply of goods
without tax was possible. But, post introduction of GST, supply should be with GST 18%
and the customer though eligible for refund, has to invest more and hesitate to place orders.
2 Reverse charge mechanism is difficult. Not able to find whether the value of supply is
below 20 lakhs or not as there is possibility of same person making bills in the various name
within 20 lakhs to escape from taxation. Our suggestion is everyone making supply of
Goods and Services has to get GST registration.
3 The GST portal is not working well.
Always problem & new registration / cancellation is not made due to non-function of site.
Sector: XIX Tractor and Accessories under Chapter 8708 Sl. No Concern shared
1 The Government was kind enough to reduce the levy of GST on tractor and
accessories by reducing from 28% to 18%
2 Suggestion: Since, the products and its part cannot be used or attached in any other
vehicle other than the tractor, the industry will be grateful if the tractor and
accessories can be re-classified under chapter 8708 10 10.
Sector: XX Wet Grinders Sl. No Concern shared
1 The wet grinders which are classified as “Electro Mechanical Domestic Apliances”
with self contained electrical motor – Tariff No.85094010 and it is fixed at 28%.
Due to this, the price of wet grinder will increase around Rs.650/- which will affect
not only the consumers but also the whole industry severely.
2 The steep increase of duty rate from 5% to 28% even for those without SSI
exemption, (the consolidated tax was 5% VAT + 12.5% ED) made severe shocking
to the manufacturers of wet grinders and will really put Micro and Small wet
grinder manufacturers into deep trouble.
3 Suggestion: The industry requests the Hon’ble Union Minister to consider reduction
in GST to 12% from 28% levied presently. This will help the survival of many wet
grinder manufacturers in MSME sector.
XXI KEY ISSUES UNDER GST REGIME WHICH REQUIRES
CLARIFICATION / CLARITY
S.
No.
Heading Particulars
1 Input tax
credit
Whether reversal of input tax credit is required when material is sent on free of
cost basis to unrelated party in India/ outside India
2 Input tax
credit
Whether CGST Credit of a particular State can be utilized against the liability of
another State
3 Invoicing Requirements of Delivery Challan for movement to Job Worker and matching of
Delivery challans issued by principal and job worker
4 Invoicing Taxable value on job work movements - what value is to be disclosed on the face
of delivery challan
5 Invoicing,
returns
What happens when goods are not returned from job worker to principal within
the time period - manner of computation of taxable value and interest;
documents to be issued and disclosure in GST returns
6 Registration Can a Job Worker in another state be added as an additional place of business
without getting registration in other state
7 Taxability Whether Inter-state procurements of goods and services can be made from
unregistered suppliers (including those who are exempted from taking
registration)?
8 Taxability Applicability of tax on High sea sales contract - whether IGST is to be paid once
or twice and which leg of transaction would be liable to GST?
9 Taxability Canteen expenses - where the Company recovers money from employees -
taxable or not
10 Taxability Composite supply requires 2 taxable supplies - whether taxable supplies includes
exempted supplies (species of taxable supply but are exempted) ?
11 Taxability Import to a state where I don’t have a business or registration - which state IGST
to be paid?
12 Transition Treatment of Service Tax under RCM paid in July - since no credit can be
availed, is refund route available?
13 Transition Whether Form TRAN-1 can be revised after filing the same. If yes, Please
provide the timelines
14 Transition Section 142(11)('c) stipulates that credit of either VAT or ST paid will be
available for credit - can credit of both be taken?
15 Valuation In case of Free of cost supply of tool by an original equipment manufacturer to
part manufacturer, what would be the treatment of Tool amortisation - whether
to be included in the transaction value to assess tax
16 Input tax
credit
Whether input tax Credit is eligible on Staff transportation by Bus or tempo
traveller to commute to office
17 Input tax
credit
Section 17 (5) postulates credit eligibility of rent a cab, insurance etc. for
notified sectors. Please notify/ clarify the list of such sectors for whom the credit
is eligible
18 Input tax
credit
Whether the following credit can be transferred through ISD, Like Hotel
Charges, Branch office rent, Telephone Bill of branch office etc. where the
registered taxpayer do not have any output liability
19 Payment of
tax
In a case where the advances is received at head office for operations carried out
at branch as well, how to determine the place of supply and location of state
from where services to be provided ( as the same are not determinable at the time
of receipt of advance)
20 Taxability In a case where the advances is received at head office for operations carried out
at branch as well, how to determine the place of supply and location of state
from where services to be provided ( as the same are not determinable at the time
of receipt of advance)
21 Taxability Similarly whenever an employee stays at any of our resort during official visit,
we are not charging for his food expenses at the restaurant. Will this be liable for
GST ?
22 Procedural Who is required to file Bill of Entry in case clearance from SEZ to DTA?
23 Taxability In case immovable property is located in TN , but the registered person is located
in WB, Whether IGST would be applicable on services related to immovable
property?
24 Taxability Whether sale of priority sector lending certification will be liable to GST, if yes
then whether to be treated as supply of goods or service.
25 Valuation Valuation of spares within warranty period in case of third party suppliers when
value covers new supply and defective products; issue on such movement.
26 Taxability Rate of GST for transmission tower lines, Scrips/licenses (MEIS, SEIS etc.)
issued under the foreign Trade Policy
27 Taxability Taxability of pure reimbursement such as (electricity charges, license fees etc.)
on actual basis
28 Registration Whether registration is required when sale on approval is performed and stock is
lying at customer premises before sale
29 Refund In a case where the GST rate on inputs exceeds the GST rate on provision of
output service, whether refund of the excess input tax credit would be available
and whether it is available for services also.
30 Refund In a case where exempted product are exported - Whether input tax credit shall
be eligible or whether refund shall be eligible for export of such exempted
product
31 Export What is the new documentation required for procurements made by SEZ, as we
understand that different practices are being followed at field level
32 Others What would be mechanism/ manner for computing the benefit of ITC/ excess
output tax in relation to Anti profiteering measure? Would sector specific
guidelines be presribed for the same . Whether any toleracne limit/ materiality
would be prescribed.
33 Registration Is there any registration requirement for sales office?
34 Input tax
credit
Whether credit of works contract related to immovable property would be
available to Builders/ Developers?
35 Transition Any possible extension of timeline for filing GSTR- TRAN 2?
36 Transition Whether Form GST- TRAN 1 would require specific approval from the tax
authorities or would the same be auto approved once filed by the taxpayer
37 Transition In a case where goods are sent on Job work and the goods have not been
received within 180 days/2 years under pre GST regime, assesse would have
reversed the CENVAT Credit on such inputs. In case the goods are received
under post GST regime, whether it is possible to avail the credit reversed earlier
38 Others whether 3PL service provider importing on record for supply of goods be
eligible to avail IGST credit on import ?
39 Registration Whether same premises can be used for the purpose of different vertical
registrations
40 Valuation Whether the definition of jobwork would include only processing/ labour activity
or the same can be construed to include value of goods also
41 Others STPI / EOU - GST is making the continuity in such zones unviable
42 Others Other Schemes under FTP - Not very lucrative
43 Transition Manner and mechanism for transitioning of credit to new registrations obtained
as a separate business vertical
44 Valuation Mechanism for transferring the Credit in case of demerger of companies
45 Others How to treat sales return from transporter's godown when the customer does not
want to accept the goods cleared before the GST regime-
46 Transition Eligibility of excise duty credit on closing stock as on the appointed date for
works contractors paying tax under ST valuation scheme
47 Others Whether cross charge of common expenses is a viable option for transfer of
credit between distinct persons, guidance note?
48 Others Whether benefit of zero rating is available for sub- contractors supplying goods
to SEZ on bill to ship to basis?
49 Others Fate/ continuity of MOU Benefits
50 Input tax
credit
Whether credit can be availed dumpers, tippers, JCB, Cranes etc. as they qualify
as motor vehicles under MV Act. However, such goods are used in the course or
furtherance of business ?
51 Input tax
credit
Whether ITC on RCM basis shall available in the same month of the invoice or
only after making the payment?
52 Others Meaning of the term 'authorized operations' used under the IGST Act?
53 Others Whether option of 50% credit as per section 17(4) is eligible for entire company
(as whole) or GSTIN wise?
54 Registration If the turnover exceeds 20L, GST is to be paid on the excess amount or from Re
1
55 Others Second hand goods from registered vendors - Valuation mechanism not
prescribed
56 Others GST implications on Sale in the course of import (SICOI) transactions
57 Others whether distinct supply/ service contract in relation to immovable property
would constitute as 'works contract' under GST regime
58 Others No specific transition provision for carry forward of Unutilized WCT TDS credit
59 Others Time of issuance of invoice for continuous supply of services - whether 30 days
benefit is available or not?
60 Others Whether opening balance of accumulated CENVAT credit on account of
Inverted duty structure can be claimed as refund?
61 Registration Technical errors/ glitches faced by the taxpayers in getting new registration
under GST, any extension of timeline in this regard
62 Taxability Whether P&M movement between distinct persons located across various states
can be exempted from the levy of GST?
63 Others No clarity on the manner of computation of BCD reversal when the goods are
removed from EOU to DTA. Notification 52/2003 -Custom read with
Notification 59/2017-Custom does not prescribe the manner/ modus operandi of
reversal of BCD
64 Taxability Whether reimbursement of expenses by the employees on actual basis would be
subjected to levy of GST or not?
\
Congratulatory Note
Auto Sector
Automotive industry is positive on the introduction of GST as the new tax regime will remove
cascading impact and improve efficiency.
Construction Sector
Construction industry compliments the Government of India on the implementation of GST. The
industry, under the erstwhile tax regime, the benefit of input tax is not fully available, the benefits
arising out of input tax credit on raw materials available under the GST regime would result in an
overall tax neutral incidence.
Elevator Sector
Implementation of GST has been a boon to the elevator industry for the reason that the nature of
business of supply and installation hitherto considered as works contract has been categorized
under “services” giving a certainty and clarity to various aspects of the business. The rate is
prescribed at 18% which is slightly above the effective tax rate at present. The GST Act also has
been more consumer centric requiring the industry to pass on the benefits.
Leather Sector
Leather Industry sincerely thank the Government for fixing the lower GST slab of 5% for raw
hides and skins and semi-finished leather and for footwear with Retail Sale Price up to Rs.500/- .
This will definitely help in enhancing the price competitiveness of the industry.
Logistics Sector
The industry compliments the Government of India for the implementation and the smooth role
out of GST. This transformative legislation will simplify the indirect tax regime in our country
and align India with the global economics on the taxation front.
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