Latest Blogs from SBS and Company LLP

    A Bird's Eye View of GST

    GST is likely to be implemented with effect from 1st July 2017, as the Central Government passed the GST bills in the parliament. From time to time the government is trying to analyse the impact of GST on the Indian Economy. It has also set up committees to study the industry wise effects of GST. This article is mainly focussed on basic concepts under GST.

    Threshold Limit: 

    GST provisions shall be applicable if the taxable person makes supplies of goods and/or services and he shall be registered in the state/union territory and pay tax if his aggregate turnover in a financial year exceeds 20 lakhs and the limit of 10 lakhs shall be applicable for special category states. “Aggregate Turnover” refers to turnover of all the supplies made on his own account including exempt supplies and also on behalf of his principals. 

    Supply of Goods and/or Services: 

    Under GST Law, the taxable event shall be supply of goods or services or both. Supply is defined to include all forms of supply such as transfer, sale, barter, exchange, lease, rentals when they are for consideration in the course of or furtherance of business or commerce. Since, it is an inclusive definition; it would cover within its ambit all kinds of transactions involving supply of goods or services or both 

    Supply shall also include importation of services whether or not received in the ordinary course of business. Under existing law, service tax is not attracted on the importation of service for personal consumption/non-business use as it is exempted via entry 34(a) of Mega exemption notification. Services of this nature are pulled into tax net under GST regime to align with customs duties, which is levied on goods imported for personal consumption/non-business. 

    Schedule I of the Act specifies certain categories of transactions which shall be considered as supply even though there is no consideration involved. Permanent disposal/transfer of business assets on which input tax credit is claimed, transfers between related persons, principal agent transfers, importation of service from related person or any of the related foreign establishments shall fall under this schedule. 

    Schedule II of the Act specifies the categories of transactions which are to be considered as supply of goods or supply of services. In item 4 (transfer of business assets) of the said schedule, it clearly demonstrates 

    • when the business assets transferred permanently, such transfer shall be treated as supply of goods; 
    • when the goods held for business transferred for private use, such temporary transfer shall be treated as supply of service; 
    • In case, if the person carrying out the business ceases to be taxable person, all the goods forming part of assets shall be considered as supply made by him unless the business transferred to another person or carried out by successor. 

    Here, it is speaking whether such transfer can be treated as supply or not and silent on the point, whether such supply should be treated supply of service or supply of good. 

    In item 5(c) of the said schedule, Temporary transfer or permitting the use or enjoyment of any intellectual property right is to be treated as supply of service. However there still exists ambiguity with respect of treatment of intangibles other than intellectual property right whether to consider such supply as supply of service or supply of good since, they have been left uncategorised and unattended. 

    Transactions covered under Schedule III and activities undertaken by Governments or local authority which shall neither considered to be supply of service as well as supply of goods. 

    Mixed Supply and Composite Supply: 

    The tax treatment in case of Mixed Supply and Composite Supply shall be different from each other. Composite Supply means a supply comprising of two or more goods or services of which one shall be a principal supply and they cannot have provided separately and bundled naturally in the ordinary course of business. Principal supply shall be considered as a supply of such composite transaction and taxed accordingly 

    Mixed Supply means a supply of two or more goods or services for a single price. They can be provided separately and not naturally bundled. Among those supplies, goods or services which attracts higher tax rate shall be considered as supply of such goods and taxed at that higher rate for the entire transaction accordingly 

    Works Contract: 

    As per the definition, Works Contract shall cover only immovable property and the contracts are treated as service even though material is involved and in case of movable contracts, ambiguity is on tax treatment i.e. whether to consider such supply as supply of goods or supply of services. 

    Input Tax Credit shall not be eligible to claim on works contract services if they are supplied for construction of an immovable property (other than plant and machinery).However, such services can be claimed if they are provided as an input service for further supply of works contract service; 

    Electronic Commerce: 

    “Electronic Commerce”refers to supply of goods/services through digital/electronic network mode and “Electronic Commerce Operator” refers to a person who owns and manages the platform of E Commerce. 

    In case of certain services as may be notified by the central government, the Electronic Commerce Operator shall be liable to pay tax (Reverse Charge Mechanism) on behalf on the supplier supplying the goods and/or services through it 

    Similar to Income Tax, under GST law, Tax collected at source (TCS) concept is being introduced for some of the supplies. E Commerce transactions falls among them. E commerce operator shall collect one percent of value of net value of supplies made through it and deposit the same to the government within 10th day on the next month, provided he shall not be the agent of the supplier and consideration shall be collected by such operator. 

    Zero Rated Supplies: 

    Export of goods and/or services and supply of goods and/or services to SEZ unit or SEZ developer shall be considered as Zero Rated Supply under GST law. 

    Event hough the zero rated supplies are exempted supplies, Input tax credit can avail refund under two options as detailed below: 

    1. Refund of unutilised input tax credit without payment of IGST on supplies made.
    2. Payment of IGST on the supplies made and claiming the refund of tax paid. 

    Job Work: 

    Job Work Charges are considered as supply of services under GST law and taxed accordingly. 

    The Principal can claim input tax credit on inputs sent to the job worker and he shall also be eligible to claim even the inputs are sent to job worker premises directly, without bringing them to his place of business. Unlike current provisions, the principal cannot not supply such goods from job worker place directly to the customer unless he declares job worker place as his additional place of business 

    Under GST law, the principal can transfer inputs and/or capital goods to job worker without payment of tax and subsequently he can further send to another job worker provided, such inputs and/or capital goods shall be returned back to the principal place within one year in case of inputs and within 3 years in case of capital goods. If not returned back with the said time limit, such inputs or input services shall be deemed to be supplied on the date of being sent to the job worker and taxed according along with the interest. 

    Reverse Charge Mechanism:

    Under GST law also, for certain categories of services, Reverse Charge Mechanism shall be applicable where the recipient of supply shall be liable to pay tax on behalf of provider of supply. In section 8 sub section 3 of the revised model law., the recipient of goods and/or services shall be liable to pay and his responsibility cannot be shifted to any other person. Whereas under Service Tax Law, for reverse charges mechanism, it shall be payable by any person “other than service provider” and such liability can be shifted to any person other than service provider. 

    Conclusion: 

    Now it is certain that GST is going to be effective at the earliest and it is very essential to have an idea about it. With this article, an attempt has been made to understand some of the basic concepts under GST.

    Tags:

    Subscribe SBS AND COMPANY LLP updates via Email!