Lets' Connect - GST India S B GABHAWALLA & CO Chartered … · Scenario Multiple Taxes On specifically defined concepts like manufacture, sale, service, entertainment, etc. With frequent

Lets' Connect - GST India S B GABHAWALLA & CO Chartered Accountants 1

Indirect Tax : Quick Comparison

International Perspective

Single Tax On all SuppliesWith unrestricted

CreditsAnd automated

processes

Current Indian

ScenarioMultiple Taxes

On specifically defined concepts like

manufacture, sale, service,

entertainment, etc.

With frequent breakages in credit

chain

And manual/isolated processes

Proposed GST Regime

DUAL TAX On all SuppliesWith unrestricted but

fragmented creditsAnd automated

processes


Levy : Summary ….

Situation Supply Tax

Location of Supplier and Place of Supply in same State Intra State CGST + SGST

Location of Supplier and Place of Supply in different States Inter State IGST (DestinationState)

Import of Goods or Services (different countries) Inter State IGST (CVD/RCM)

Import/Export of Goods or Services (different countries) Inter State Zero Rated

Others? (not a part of any State but part of India)

Supply at extended Continental Shelf, Union Territories(without Legislature)

Not Addressed ??

S B GABHAWALLA & CO Chartered Accountants 3Lets' Connect - GST India


Collection : Taxable Person

• Section 7(2) of the CGST/SGST Act• The CGST/SGST shall be paid by every taxable person in accordance with the

provisions of this Act.

• Section 4(2) of the IGST Act• The Integrated GST shall be paid by every taxable person in accordance with the

provisions of this Act.

• Section 7(3)/4(3) of the respective Acts• Notwithstanding anything contained in sub-section (2), the Central or a State

Government may, on the recommendation of the Council, by notification, specifycategories of supply of goods and/or services the tax on which is payable on reversecharge basis and the tax thereon shall be paid by the person receiving such goodsand/or services and all the provisions of this Act shall apply to such person as if he isthe person liable for paying the tax in relation to such goods and/or services.


Taxable Person – Sec. 9(1)

• Taxable Person means a person who carries on any business at anyplace in India/State of ____ and who is registered or required to beregistered under Schedule III of this Act:

• Provided that an agriculturist shall not be considered as a taxableperson.

• Provided further that a person who is required to be registered underparagraph 1 of Schedule III of this Act shall not be considered as ataxable person until his aggregate turnover in a financial year exceeds[Rs ten/five lakh]


Taxable Person – Sec. 9(3)

• The following persons shall not be considered as taxable persons forthe purposes of this Act –

(a) any person who provides services as an employee to his employer in thecourse of, or in relation to his employment, or by any other legal ties creatingthe relationship of employer and employee as regards working conditions,remunerations and employer’s liability;

(b) any person engaged in the business of exclusively supplying goods and/orservices that are not liable to tax under this Act;

(c) any person, liable to pay tax under sub-section (3) of section 7, receivingservices of value not exceeding ______ rupees in a year for personal use, otherthan for use in the course or furtherance of his business.


Specific Exclusion for Agriculturist

• Definitions• “agriculturist” means a person who cultivates land personally, for the purpose of agriculture• “to cultivate personally” means to carry on any agricultural operation on one’s own account-

• (a) by one’s own labour, or• (b) by the labour of one’s family, or• (c) by servants on wages payable in cash or kind (but not in crop share) or by hired labour under one’s

personal supervision or the personal supervision of any member of one’s family;• “agriculture" with all its grammatical variations and cognate expressions, includes

floriculture, horticulture, sericulture, the raising of crops, grass or garden produce and alsograzing, but does not include dairy farming, poultry farming, stock breeding, the mere cuttingof wood or grass, gathering of fruit, raising of man-made forest or rearing of seedlings orplants;

• Analysis• Blanket exclusion from ‘taxable person’• Restricted definition of ‘agriculturist’ and ‘agriculture’• What about subsequent transactions till the consumer?


Specific Exclusion for Employees.

• Exclusion ‘qua’ an activity

• Very widely worded

• Whether retainers covered within this?

• Whether supplies by employer to employee also covered?


Business

“business” includes –

(a) any trade, commerce, manufacture, profession, vocation or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any transaction in connection with or incidental or ancillary to (a) above;

(c) any transaction in the nature of (a) above, whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital assets and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members, as the case may be;

(f) admission, for a consideration, of persons to any premises; and

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation


Sch. III – Deemed Taxable Persons requiring registration• Irrespective of Threshold Limit

• Persons making any inter-State taxable supply• Casual taxable persons

• Persons who are required to pay tax under reverse charge

• Non-resident taxable persons• Persons who supply goods and/or services on behalf of other registered taxable persons (as an agent or

otherwise)

• Persons who supply goods and/or services, other than branded services, through electronic commerceoperator

• Every electronic commerce operator• An aggregator who supplies services under his brand name or his trade name

• Persons who are required to deduct tax under section 37

• Input service distributor

• Such other person or class of persons as may be notified by the Government


Supply – Section 3(1)

• Supply includes(a) all forms of supply of goods and/or services such as sale, transfer, barter,

exchange, license, rental, lease or disposal made or agreed to be made for aconsideration by a person in the course or furtherance of business,

(b) importation of service, whether or not for a consideration and whether ornot in the course or furtherance of business, and

(c) a supply specified in Schedule I, made or agreed to be made without aconsideration.


Schedule I : Deemed Supplies

• Permanent transfer/disposal of business assets

• Temporary application of business assets to a private or non-businessuse

• Services put to a private or non-business use

• Assets retained after deregistration

• Supply of goods and / or services by a taxable person to anothertaxable or nontaxable person in the course or furtherance of business• However, supply of goods by a registered taxable person to a job-worker in

terms of section 43A shall not be treated as supply of goods


Quick Comparison

General Meaning – Section 3(1)(a) Specific Inclusion – Schedule I Entry 5

All forms of supply of goods and/or services Supply of goods and / or services

Made or agreed to be made

For a consideration Without a consideration

By a person by a taxable person

to another taxable or nontaxable person

In the course or furtherance of business in the course or furtherance of business


Literal Interpretation – Disaster in making?

• Goods• Polio Drops distributed by a pharma company in a campaign to eradicate the

disease from the country• Water Bottles distributed at Marathon Run• Shampoo Sachets distributed near the railway station to passersby• Ice-cream provided by a parlour to children on its’ inauguration

• Services• Door-darshan airing “Free to Air Content”• Free Tax Advise / Lecture by a Professional • Free Warranties• Guarantee provided on behalf of employee


Purposive Interpretation…

Sup

ply

ContractEssential requirement of a

transaction driven tax

Commercial IntentRequired by the definition

itself

Not Embedded within larger supply

May be prescribed through Rules

Not a Condition Precedent but an intended supply

May need to be derived from the earlier

requirement


Made or Agreed to be made

• Distinction between ‘made’ and ‘provided’

• Scope of “agreed to be made” • Does it attach to form of supply or to the levy?

• What happens in cases where the supply is already made/agreed to be made, but the invoice/money is received later?


For a consideration

• “consideration” in relation to the supply of goods and/or services to any person, includes

(a) any payment made or to be made, whether in money or otherwise, in respect of,in response to, or for the inducement of, the supply of goods and/or services,whether by the said person or by any other person;

(b) the monetary value of any act or forbearance, whether or not voluntary, in respectof, in response to, or for the inducement of, the supply of goods and/or services,whether by the said person or by any other person:

Provided that a deposit, whether refundable or not, given in respect of the supply ofgoods and/or services shall not be considered as payment made for the supply unless

the supplier applies the deposit as consideration for the supply;


Process Steps


Tax Treatment of Branch Transfers

• Informally Circulated Draft Law• Self Supply of Goods and/or Services

• Formally Circulated Draft Law• Supply of goods and / or services by a taxable person to another taxable or

nontaxable person in the course or furtherance of business

• Whether branch is another taxable person?• Explanations to import/export of services – deem establishments in India and

outside India to be separate persons• No such deeming fiction for establishments across States• Whether the levy will be under CGST + SGST Acts or under the IGST Act?• Can a distinct registration be the only basis for treating branch as another taxable

person?• Valuation Method Prescribed to be transaction value


Branch Transfers – Economic Rationale

S B GABHAWALLA & CO Chartered Accountants

Branch B

CGST

SGST

IGST

Branch Transfers Input Output Net Input Output Net

No GST - 100 0 -100 0 150 150

GST Applicable - 100 120 20 - 120 150 30

21Lets' Connect - GST India

Supply – Can we dilute duality?

• Supply of goods and / or services by a taxable person to another taxable ornontaxable person in the course or furtherance of business

• If this phrase is interpreted to include branch transfers, will thisphrase also include:• Movement of other goods (laptops, promotional materials, furniture,

stationery, uniforms, etc.)

• Movement of fixed assets (dumpers, aircraft, buses, transport vehicles)

• Provision of Service (Corporate to Factory/Branch – Audit, Inspection,Marketing, Management, Branding, Banking, etc.)

• What will be the scope of coverage?


Supply - Job Work

• Definition – Section 2(62)• “job work” means undertaking any treatment or process by a person on

goods belonging to another registered taxable person and the expression “jobworker” shall be construed accordingly

• Examples – Manufacturing, Repairs, Testing

• Special Provisions (without payment of tax) – Section 43A• Supply by Principal to Job Worker and to onward Job Worker

• Return Supply to any place of business

• Direct Supply from Job Worker only on payment of tax


In a summary

Principal Job Worker

AnotherJob Worker

Without GST

Without GSTCustomer in

India

Customer Outside India

24S B GABHAWALLA & CO Chartered AccountantsLets' Connect - GST India

Nature of Supply – Section 3(2) & 3(3)

• Section 3(2):• Schedule II, in respect of matters mentioned therein, shall apply for

determining what is, or is to be treated as a supply of goods or a supply ofservices.

• Section 3(3):• Subject to sub-section (2), the Central or a State Government may, upon

recommendation of the Council, specify, by notification, the transactions thatare to be treated as

(i) a supply of goods and not as a supply of services; or

(ii) a supply of services and not as a supply of goods; or

(iii) neither a supply of goods nor a supply of services.


Schedule II

Nature of the transaction Nature

Transfer of title in goods Goods

Transfer of right to use goods Service

Transfer of future goods Goods

Lease of land Service

Lease of building Service

Job work on others goods Service

Transfer of assets on sale of business Goods

Making available of goods for private use Service

Recovery of pledged assets Goods


Schedule II

Nature of the transaction Nature

Closure of business Goods

Renting of immovable property Service

Sale of under construction units Service

Transfer of IPR Service

Development of IT software Service

Agreeing to the obligation to do an act or refrain from doing an act Service

Works Contract Service

Transfer of right to use Service

Supply of food as a part of service Service

Supply of goods by an unincorporated association to its members Goods


Nature of Supply

• Relevance • Separate Rules for time, place of supply, import and export

• Classification HSN / SAC to be mentioned in returns

• Certain concepts applicable only to services• Pure Agent, Input Service Distributor, Aggregator


Relevant Definitions

• Section 2(48):

• “goods’’ means every kind of movable property other than actionable claimand money but includes securities, growing crops, grass and things attachedto or forming part of the land which are agreed to be severed before supplyor under the contract of supply;

Explanation.– For the purpose of this clause, the term ‘moveable property’shall not include any intangible property.

• Section 2(88):

• “services’’ means anything other than goods;

Explanation: Services include intangible property and actionable claim butdoes not include money.


Issues (Exclusion from current service Definition) : • I -- Immoveable Property – whether excluded?

• Sale of Flats/Offices• TDR / FSI• Land and Other Immoveable Property

• M --- Money - Excluded from both goods as well as services• A -- Actionable Claims – included in services?

• Gift Vouchers• Sodexo Coupons• Sale of Debtors

• G – Goods – see separate analysis• E – Employment Contracts – excluded from taxable person


Issues ( Exclusions from current goods Definition) : • Newspapers – no longer excluded?

• Stocks, Shares or Securities – no longer excluded?

• Lottery Tickets – no longer excluded?



Documents

Lets' Connect - GST India S B GABHAWALLA & CO Chartered … · Scenario Multiple Taxes On specifically defined concepts like manufacture, sale, service, entertainment, etc. With frequent