Hiregange & AssociatesChartered Accountants

Practical Issues on

• Anti Profiteering

• Job Work

• Tax Collected at Source

• Tax Deducted at Source

• Warranty / Repairs

16/07/20199

-CA Sudhir VS

Anti-Profiteering – Statutory Provision

2

Sec 171(1) of the CGST Act, stipulates that

• 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 reduction in prices

Cases where Anti-Profiteering Provisions may attract

• Exempt under earlier laws and taxable under GST

• Taxable with ITC restrictions under earlier law, which are now taxable with full ITC

e.g. construction sector

• Reduction in rate of GST e.g.: Restaurants, movie theaters etc.

• Taxable under GST with ITC restriction and now converted into taxable without any

ITC restrictions.

• System & Processes

• Anti-profiteering brings in a dynamic situation for businesses where, every time

there occurs a reduction in GST rates or enhancement in credit pool, the benefit

needs to be passed on to consumers.

• Therefore, every change in prices is expected to be backed by data, documentation

providing the formulas, workings, backups etc. explaining the rationale of such

price increase.

• Towards this, the companies should gear up their systems and processes to deal

with the requirements of anti–profiteering on a go forward basis.

Anti-Profiteering – Practical Issues

• Computing Benefits due to Lower Tax Rates and Increased Credits:

• Currently, guidelines to compute the benefits have not been prescribed, yet

taxpayers can compute the likely benefit at a boarder level.

• Taxpayer should identify benefits arising due to more Input Tax Credit available

on account of transition to GST at organizational level.

• Once benefits arising from credit are captured, the next step should be to

compute benefits from rate reduction, if any. This benefit may be computed at

the product level based on cost sheet .

Anti-Profiteering – Practical Issues

• Difficulties in compliance

• At what profit indicator level should the anti-profiteering computation be made –

at product/segment/business vertical/ company. It should be considered that

within different product lines, there are certain SKUs which exist. Also, while there

may be profits in one product line, there may be losses in others. Further, same

product may be marketed differently to different class of people

• While significant costs have been incurred on GST implementation, would the

same be considered in arriving at anti profiteering related decisions.

Anti-Profiteering – Practical Issues

Job Work

• Section 143 is applicable only to the Registered Person. It means liability

to follow the procedures as envisaged under Section 143 is upon the

Registered Person. The person other than registered person shall have no

concern about this section.

• Section 143 is applicable only to Taxable Goods. It is not applicable to the

goods exempted from GST Tax or the Taxable Goods are sent to the Job

Worker with payment of tax.

• Inputs, semi-finished goods or capital goods may be sent to the Job Worker.

Issues in job work

GST implication on the scrap that has been produced during treatment of goods is

being returned to the principal at the time of returning processed good?

Ans. In some of the cases we will have scrap which has been produced at the time of

process and according to the agreement it will be either returned back to the principal

or sold directly by the job worker. In case of first scenario i.e. returning back to the

principal it does not amount to a separate supply. That has to bee shown in ITC -04 .

Issues in job work

How to prove that the goods sent for job work are returned within prescribed time limit

i.e. within 1 year in case of inputs and within 3 years in case of capital goods ?

Ans. When principal sends inputs or capital goods for job work, he is required to file ITC-04, it

will act as a timely intimation to the department of goods sent for job work. FORM GST ITC-04

must be submitted by the principal every quarter. He must include the details of challan in

respect of the following-

• Goods dispatched to a job worker or

• Received from a job worker

Hence this can be used as a proof that the goods are returned back within prescribed time.

Issues in job work

When the processed good received from job worker is in a different form and substance when

compared to the goods sent ?

Ans. Even though it seems like two different products are in the transaction, it can be treated as the

agreed good is being sent by the job worker after treatment.

In ITC 04 it is advisable to convert the goods received from job worker in the proportion to the goods sent

and respective units.

Job work can lead to manufacture ?

Manufacture of industrial gases (Oxygen, Nitrogen and Argon) from goods (Electricity, industrial quality

water and air) supplied by principal amounts to “job work” – Inox Air Products P Ltd. (2018) 68 GST 464

JSW Energy Ltd AAAR – It is concluded that conversion of coal into electricity would amount to job work.

Collection of tax at source -

- Sec 52 of CGST Act 2017

Who is required to collect TCS and rate of TCS

• Every electronic commerce operator (“operator”), not being an agent, shall collect

TCS at prescribed rate when taxable supplies are made through it by other suppliers and the

consideration with respect to such supplies is to be collected by the operator.

• TCS is to be deducted at the rate not exceeding 1% of the net value of taxable supplies of the

goods/services supplied through the portal of the operator

• Circular No. 74/48/2018-GST, dated 5-11-2018: TCS at the notified rate, in terms of section

52 of the CGST Act, shall be collected by Tea Board respectively from the

i. sellers (i.e. tea producers) on the net value of supply of goods i.e. tea; and

ii. auctioneers on the net value of supply of services (i.e. brokerage).

• Under Section 52, e-commerce operator collects TCS at the net of returns. Sometimes sales return is

more than the sales, and hence can negative amount be reported?

Negative amount cannot be declared. There will be no impact in next tax period also. In other words, if

returns are more than the supplies made during any tax period, the same would be ignored in current as well

as future tax period(s).

• Whether website maintained without booking for supplies fall under purview of E-commerce

operator?

No, if only website is maintained to display the products of third parties , but the bookings cannot be made

then it is not an e-commerce operator. and no need to collect TCS.

• TCS to be collected on supplies on which the e-commerce operator is required to pay tax?

No TCS will not apply in such cases

TCS – Practical Issues

• Whether the refund of such TCS credit lying in the ledger would be allowed at par with the

refund provisions contained in section 54(1) of the CGST Act, 2017?

If the supplier is not able to use the amount lying in the said cash ledger, the actual supplier may claim

refund of the excess balance lying in his electronic cash ledger in accordance with the provisions

contained in section 54(1) of the CGST Act, 2017.

• Under multiple e-commerce model, Customer books a Hotel via ECO-1 who in turn is integrated

with ECO-2 who has agreement with the hotelier. In this case, ECO-1 will not have any GST

information of the hotelier. Under such circumstances, which e-commerce operator should be

liable to collect TCS?

TCS is to be collected by that e-Commerce operator who is making payment to the supplier for the

particular supply happening through it, which is in this case will be ECO-2.

TCS – Practical Issues

TDS is applicable to

• A department or establishment of the Central Government or State Government; or

• local authority;

• Governmental agencies; or

• Such persons or category of persons as may be notified by the Government on the recommendationsof the Council

When TDS is required to be deducted

• If the supplier’s total value of such supply under a contract, exceeds two lakh and fifty thousandrupees.

• -Total value of supply should be considered not total invoice value

• -Taxable Value shall not include central tax, State tax, Union territory tax, integrated tax and cessindicated in the invoice.

Deduction of tax at source- Sec 51 of CGST Act 2017

TDS – Practical Issues

• Can the deductee take action on the TDS credit declared by me?

• After filing of return by deductors (DDOs) in FORM GSTR-7, the amount so deducted will be auto-populated in

‘TDS/TCS credit receipt’ table of respective suppliers. The supplier (deductee) has to accept or reject the amount so

auto-populated in the table after logging on the portal. The accepted amount will be credited to Electronic cash

ledger while rejected amount will be auto-populated in Amendment table of next month’s FORM GSTR-7 of the

deductor.

• What will happen if the TDS credit entry is rejected by the deductee?

• The rejected transactions in ‘TDS/TCS credit receipt’ table will be communicated back to the deductor who will

download the auto-populated transactions and make necessary amendments in GSTIN or amount etc. in table 4 of

FORM GSTR-7. The amended details will again be auto-populated in ‘TDS/TCS credit receipt” table. Supplier will

take action comprising Accept/Reject the transactions. As usual, amount of accepted invoices will be credited to

electronic cash ledger of the supplier.

TDS – Practical Issues

• Whether is TDS GST applicable on Advance Payment?

• Yes, TDS is applicable on advance payment made for supply of goods or services under a contract, where

contract value exceeds 2,50,000 (excluding GST).

• Is there any provision of refund to the deductor or the deductee arising on a/c of excess or erroneous

deduction made under GST?

• The refund to the deductor or the deductee arising on account of excess or erroneous deduction shall be dealt

with in accordance with the provisions of section 54. Further no refund to the deductor shall be granted, if the

amount deducted has been credited to the electronic cash ledger of the deductee

Warranties and repairs

17

• Warranty is a type of guarantee that a manufacturer or similar party makes regarding the

condition of its product. It also refers to the terms and situations in which repairs or

exchanges will be made in the event that the product does not function as originally

described or intended.

• Repairs has not defined in the GST Law,2017. The TERM Repairs means :-

(a) To restore by replacing a part or putting together what is torn r broken, fix a part,

(b) To restore to a sound or healthy state,

(c) To make repair for becoming good for running / condition for use,

(d) Work of maintenance, decoration or restoration.

Warranties and Repairs – Practical Issues

• Warranty Service provided by third party?

• If such cost is charged by a third party center, there is not much to worry as the third party would raise

an invoice on the manufacturing company with GST charged on it and the company can take a credit of

such tax charged from it.

• The only precaution which must be followed by the Company is that the credit of the tax charged by the

third party vendor must be taken under the same GSTIN in which tax was paid on the supply of the

product originally as the manufacturer.

• If the credit is taken by another GSTIN, the same is not available as credit as such input service is not

used in the provision of any outward supply of such distinct person. In such case, the receiving location

would require registration as Input Service distributor and it shall be distributing such credit to the

manufacturing location.

Warranties and Repairs – Practical Issues

• Suppose, the consideration for supply of warranty services is included in the initial sale of the product but

in future, situation is not raised for any supply of warranty services. In such a case, what we have to do?

• Warranty is a compensation to any damage that happens after sales has happened. It is probable. Hence, even

if there is no occurrence of such occasion, the GST already paid on original sales which is inclusive of warranty

charges does not have any affect. The tax paid stands paid. No reversal or any other adjustment is required.

• What is the tax liability in a scenario where supplies are made from multiple locations (in

different States) of the supplier to the recipient under a single contract?

• Delivering services from various locations and integrated pricing for the contract as a whole is the norm

in IT/ITES industry. Normally the contract or agreement with the recipient is entered into by one of the

branches (let us say “Main Branch”).

• In such cases of service delivery from multiple locations of the supplier to the recipient, the supply

could be visualized as consisting of two distinct supplies. First supply- the different branches of the

supplier located across different States are making the supply to the main branch which entered into a

contact or an agreement with the recipient for the supply of such service. Second supply- main branch is

making a supply to the customer. GST is to be levied accordingly. In such a scenario, the main branch

would get input tax credit of GST paid by the other branches on supplies made by them to the main

branch.

Warranties and Repairs – Practical Issues

21

sudhir@hiregange.com