Download GST - Surya Roshni

GST Impact and Implementation
Project
Surya Roshni Limited
Background
•
•
•
•
•
•
Steel
M/s Surya Roshni Limited (SRL) founded in 1973 started
with its steel division
SRL- one of the largest in steel tube industry
Manufactures steel pipe products for various industries
Lighting
SRL started its lighting division later
One of the leading brands in the Lighting industry
Carved a niche of its in other segments such as Fans &
Home Appliances
Copyright (c) 2017. Lakshmikumaran & Sridharan / Confidential.
SRL – Business Network
Local
(Inter,Intra)/Import of
Raw Material
Manufacturing units of
SRL
(Lighting- Kashipur,
Steel- Malanpur)
Customer
(Institutional/Industrial)
Depots( For
customized products)
Finished Goods
Raw Material
Distributor
Ghaziabad Hub
(Trading)
SRL Branches
(Various States)
GST - ROADMAP
 Expected GST roll out date - 1st July, 2017
 Fall-back date – 1st September, 2017
 Preparedness
 GST compliant IT system
 Domain knowledge for staff / management
 GST compliant accounting system
 Smooth and tax efficient transition strategy
Copyright (c) 2017 Lakshmikumaran & Sridharan / Confidential.
GST – SALIENT FEATURES
 Taxes subsumed under GST: Excise duty,
Service tax, CVD, SAD, Entry tax, etc.
VAT,
CST,
 Taxes not subsumed: Clean energy cess, Electricity Duty,
etc.
 GST is IT System driven
 GST is destination based consumption tax (VAT)
 Rate of tax on goods : 5% / 12% / 18% /28%
Copyright (c) 2017. Lakshmikumaran & Sridharan / Confidential.
Supply
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Meaning of Goods
Goods
Means
Every Kind
of
Movable
Property
Other
than
Money and
Securities
Includes
Actionable
Claim
Growing Crops, grass and things
attached to or forming part of the
land which are agreed to be
severed before supply or under a
contract of supply
Meaning of Services
Services
Means
Anything
Other
than
Goods
EXPLANATION Given in Law:
Services does not include money and Securities but include following transactions in money:
• An activity relating to the use of money or
• Its conversion by cash or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate consideration is charged
Taxable Event – Supply
GST Bill
SUPPLY
All forms of supply
Made or agreed to be made
INCLUDES
For a consideration
By a Person
In the course or furtherance
of Business
Sale/ Transfer /Barter / Exchange
/License / Rental / Lease / Disposal
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Malaysia: All forms of Supply, including
supply of imported services, done for a
consideration
Australia: A Supply is any form of Supply
whatsoever
United Kingdom: includes all forms of
supply, but not anything done otherwise
than for a consideration
Supply without Consideration

Schedule I (Serial No. 2) to GST Bill
“Supply of goods or services between related persons, or between distinct persons as specified in
section 25, when made in the course or furtherance of business.”
Gifts by employer to employee in a financial year upto Rs 50,000 not taxable
Section 25 of GST Law
“(4) A person who has obtained or is required to obtain more than one registration, whether in
one State or more than one State, shall, in respect of each such registration, be treated as distinct
persons for the purposes of this Act.
(5) A person who has obtained or is required to obtain registration in a State, and any of his other
establishments in another State shall be treated as establishments of distinct persons for the
purposes of this Act”
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Composite or Mixed Supply
Mixed Supply
A supply comprising two or
more supplies for a single
price shall be treated as
supply of that particular
supply which attracts the
highest rate of tax
Composite Supply
A supply comprising two or
more supplies, one of which is
a principal supply, shall be
treated as a supply of such
principal supply
Principal Supply
A supply constituting the predominant element of a composite supply and to which any other supply is
ancillary which does not constitute an aim in itself but a means of better enjoyment.
Copyright 2016, Lakshmikumaran & Sridharan / Confidential
CASE STUDY : Composite supply
•
Major Sales of SRL- FOR basis
Ex-Factory sale of
goods
Transportation
service
Issues:
- Whether composite supply or independent supplies?
- What if there is a difference in rates of tax?
CASE STUDY : En-route damage
Sale of goods – FOR
destination basis
En-route damage
Issue:
- Whether supply?
- Time of supply already taken place for the seller?
Taxable Person - Registration
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Taxable Person
Liability to pay CGST + SGST or IGST on TAXABLE PERSON.
A Supplier liable to be registered in a state (or Union territory) from
where he makes a taxable supply of goods or services or both
• Person not required to be registered:
• Aggregate turnover upto Rs. 20 Lakh
(Rs. 10 Lakhs in NE States, Sikkim, J&K, Himachal Pradesh, Uttarakhand)
• Person engaged in supply of goods/services not liable to tax or wholly exempt;
• An agriculturist
Copyright 2016, Lakshmikumaran & Sridharan / Confidential
Registration
Mandatory Registration
• In each state (or Union territory) from where
the supplier makes taxable supply of goods
and/or services
Optional Registration
• Separate registration for each business vertical
in a state
Copyright 2016, Lakshmikumaran & Sridharan / Confidential
MULTIPLE BUSINESS VERTICALS
REGISTRATION
SRL BUSINESS
VERTICALS
LIGHTING
(Uttrakhand)
STEEL
(Uttrakhand)
Separate registrations for multiple business verticals in a State may be
granted [Proviso to Section 25(2)]
Copyright 2016, Lakshmikumaran & Sridharan / Confidential
Place of Supply
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Destination Based Consumption Tax
•
Destination based tax (consumption tax) are levied at places where goods and services
are consumed rather than at places were they get manufactured or from where they are
supplied i.e. production and the entire revenue relating to the goods or services should
accrue in the jurisdiction where they are being ultimately consumed.
Central Government
Goods and services
Uttar Pradesh
Consideration Including
Taxes
Uttarakhand
Nature of Supply : Local / Inter State
Situation
Inter state Supplies ( Leviable to IGST)
Place of Supply
•
•
Intra State Supplies (Leviable to CGST / SGST)
If location of supplier and place of supply are in different
States.
If supply of goods or services is made to SEZ Developer or
SEZ Unit.
If location of supplier and place of supply are in same State.
• Import of Goods and Services
Inter State Supply
• Export of Goods and Services*
Inter State and Zero
Rated Supply
*Concept of Deemed Export also present under the Revised Model GST Law
Place of Supply :Goods other than import/ export
1
2
3
4
5
When movement
involved
Place where movement
terminates for delivery
When movement not
involved
Location at the time of
delivery
Bill to Ship to model
Person on whom bill
raised
Supplied on board a
conveyance
Place where goods
taken on board
Supply by way of
assembly/ installation
Place of such assembly/
installation
Place of Supply – Goods imported/ exported
Import
India
The place of supply of goods imported into India shall be
the location of the importer
The place of supply of goods exported from India shall be
location outside India
Export
Place of supply of services
General Rule
Current regime
Revised Model Law
Location of recipient of service
B2B supplies: Location of Recipient
Location of service provider if the
above not available
B2C supplies:
Address on Record exists - Location of
Recipient
Any other Case- Location of supplier
 “Address on record” defined - address of the recipient as available in the records of the
supplier
 Definition of “location of recipient of service” and “location of service provider”
Place of supply of services
Nature of service
Services directly relating to
immovable property
GST Bill
•
•
•
Place where immovable property is located or intended to be located
Location of immovable property is outside India - Location of the Recipient
Where property located in more than one state- Proportionate allocation
amongst states as per the contract or on reasonable basis
Performance based services
(Specific services covered such Place of actual performance
as supply of restaurant and
catering services, health service
etc.)
Services in relation to training
and performance appraisal-
B2B supply: location of recipient
B2C supply: place of performance
Place of Supply of Services – Specific Rules
Both Supplier and recipient located in India
Service
Place of Supply (B2B)
Place of Supply (B2C)
Transportation of Goods, including mail or
courier
Location where service recipient is
registered
Location where goods are handed
over for their transportation
Passenger transportation services
Location where service recipient is
registered
Location where passenger embarks
on the conveyance for continuous
journey
Services on Board a Conveyance
Location of the first scheduled point
of departure
Location of the first scheduled
point of departure
Banking and other Financial Services
Location of Service recipient on
record of supplier of service
Location of supplier of services
Insurance Services
Location where service recipient is
registered
Location of Service recipient on
record of supplier of service
Advertisement Services to Central Govt.,
State Govt., State Board or Local Authority
Location shall be the recipient states
Location shall be the recipient
states
Place of supply : Bill-to/ Ship-to Model
First Supply
Vendor
Delivery
of goods
Place of supply
Malanpur
invoice
invoice
Kashipur
Second
Supply
First supply:
Principal place of business of
recipient i.e. Malanpur
Second supply:
Where delivery terminates
i.e. Kashipur
CASE STUDY
Mumbai
Delhi
Annual General
Meeting
Hotel
ABC
Company
SRL
Facts of Case:
-
SRL has a place of business in Delhi
SRL is holding its AGM in a Hotel in Mumbai
Hotel has issued an invoice to the company mentioning the address of Delhi
No Registration in Mumbai –Loss of SGST credit?
Exports
Present Regime
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5% of total supply = Exports
SRL exporting without payment of duty under Rule 19
Duty drawback claimed
MEIS benefit claimed
GST Regime
Export of Goods/Services
Option 1:

Export without payment of duty

Claim refund of unutilised tax credits
Option 2:
 Export on payment of IGST
 Claim refund of IGST paid on exports


Benefits under FTP (E.g: MEIS) to continue ?
Duty drawback benefit to continue ?
Input Tax Credit
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Inputs
Section 2 (59) : ‘Input’ means any goods, other than
capital goods, used or intended to be used by a supplier in
the course or furtherance of business.
Section 2(60) : ‘Input Service’ means any service used or
intended to be used by a supplier in the course or
furtherance of business.
Manner of Availing ITC

Manner of taking Input tax credit (Section 16)
 ITC as self-assessed in the return of a taxable person shall be credited to
his electronic ledger to be maintained in the GST portal.

Credit shall be utilized in the following manner:
IGST
IGST utilised in the
priority specified
IGST
CGST
SGST
CGST
CGST utilised in the
priority specified
CGST
IGST
SGST
SGST utilised in the
priority specified
SGST
IGST
Availment of ITC: Conditions
7
No Credit
beyond
specified
period
Time Limits
(E.g. FY 15-16)
Earliest of:
 Filing of return for
September 2016
(last date: 20th Oct 2016)
 Filing of Annual
Return for FY 15-16
(last date: 31st Dec 2016)
1
6
Monthly returns
are filed by 20th
Possession of tax
invoice
Limiting
factors
Receipt of
Goods/Services
ITC on last Lot/
Buyer has filed GST3/
GST6
Supplier has Installment
paid tax to
5
3
“Appropriate
Government”
4
2
Input Tax Credit
 Credit of ITC can be provisionally taken by a taxable person in
the return, on self-assessment basis.
 If a registered taxable person does not furnish a valid return in
Form GSTR 3, then he shall not be allowed to utilize such
credit till he discharges his self-assessed tax liability.
What is a Valid return?
Inference from Sec. 2(117) r/w Sec. 37(1):
A return filed registered taxable person after duly discharging applicable GST for
the purpose of allowing ITC in respect of supplies made by such person.
Concept of Cross matching of data is prevalent in Australian GST. =
While filing Business Activity Statement (Similar to return), the system cross
validates the data of Supplier’s sale vs. Recipient Purchases
Input Tax Credit on Capital Goods
Capital Goods:
Goods the value of which is capitalized in the books of accounts of the person
claiming credit and which are used in the course or furtherance of business
Current scenario
In the first FY in which capital goods are
received, only 50% of the Cenvat credit
can be availed
GST scenario
• 100% credit will be allowed in the year
of purchase only
• Depreciation not to be claimed on tax
amount under IT provision (same
position as present continues)
GST: Seamless Credit Flow?
• GST Objective : Seamless credit across entire supply chain
– There should be no dead credit in the system
• GST
– No Cross utilization between CGST and SGST
– CGST and SGST paid in X state not available as credit in Y
state
– Negative list under Section 17
Input Tax Credit – Negative List of items
SL
Negative list Item
Exceptions
1
Motor vehicles and other conveyances
a.
b.
c.
d.
Further supply of such vehicles
Transportation of passengers
Imparting training
Transportation of goods
2
Food & Beverage, outdoor catering, beauty treatment,
health services, cosmetic and plastic surgery
Providing outward taxable supply of same
category
3
Membership of a club, health and fitness center
4
Rent a cab, life insurance, health insurance
Except where government notifies services
which are obligatory for an employer to provide
to his employees under law
5
Works contract services for construction of immovable
property other than Plant & Machinery
When it is used as an input service for further
supply of works contract service
Input Tax Credit – Negative List of items
SL
Negative list Item
6
Goods or services used in construction of any immovable property on his own account, even if used for
business (other than Plant & Machinery)
7
Goods or services or both received by a non- resident taxable person except on goods imported by him
8
Goods and/or services on which tax has been paid under Composition Scheme
9
Goods/services used for personal consumption
10
Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
11
Taxes if any paid under following circumstances ;
i.
Wrongful utilization by reason of fraud, willful- misstatement, credits wrongly utilized or availed,
erroneously refunded
ii. Detention, seizure and release of goods and conveyances in transit
iii. Confiscation of goods and/or conveyances and levy of penalty
Issue : Used for personal consumption
• ‘goods and/or services used for
personal consumption’
– Illustration
:
LED
bulbs
manufactured by Kashipur Plant
used by the employee of same plant
for personal use
• Whether ITC available?
Issue : Gifts
• 17(4)(h)- Goods lost, stolen, destroyed, written off
or disposed of by way of gift or free samples
– Meaning of gift?
– Section 122 of Transfer of Property Act, 1882, “Gift” is the transfer of certain existing
moveable or immoveable property made voluntarily and without consideration
– Australian GSTR 2001/ 06 :- Unconditional incentives and promotional giveaways. ………, ‘a
non-monetary payment is sometimes made by an entity (such as a manufacturer) to
induce another party to make or continue to make purchases from the entity. Where the
payment is truly unconditional (that is, a gift), it is not consideration for a supply by that
other party.
Issue : Gifts
•
Credit on the following :– Calendars, Diaries, etc given without
condition
– Display boards, flyers, etc with conditions
but no contractual obligations
– Promotional items supplied with the
obligation on dealer to perform certain
activity in return
FOC Supply
Vendor
Manufacturer
Dealer
Supply of promotional item
Supply of promotional
service
Issue : Samples
• 17(4)(h)- Goods lost, stolen, destroyed,
written off or disposed of by way of gift
or free samples
• What is a free sample?
– Singapore VAT Law and Malaysian GST Law:
“An industrial or commercial sample in a
form of good which is given to an actual
or potential customer and not ordinarily
available for sale to the public”
• Sample LED of new model given to customer
Issue : Interest
• 17(4)(h)- Goods lost, stolen,
destroyed, written off or disposed
of by way of gift or free samples.
• Interest liability from the date of
wrongful availment
– Exclusion covers situation based
on disposal
– Whether it will be considered to be
wrongful availment of ITC?
Section 17(4)(h)- Optional?
17(4)(h)- Goods lost, stolen,
destroyed, written off or
disposed of by way of gift
or free samples.
Schedule I : Transfer or disposal
of business assets deemed as
Supply even if without
consideration when ITC has been
availed on such assets
• Whether it is optional to avail credit and pay GST on outward
supply?
Issues in case of sales return under warranty
* Sales return of goods covered under warranty ( 1 year)
Current
Treatment
Credit note
Free Replacement
GST REGIME
 Credit note-Under section 34 of GST Bill
 The credit note has to be mentioned in return in the
very same month
ILLUSTRATION
Defected goods
received are
scraped
Returns Defected Goods
Customer
ITC to be
reversed?
New goods are dispatched to customer
GST levied?
47
Input Service Distributor
•
Section 2 (61) : ISD means an office of the supplier of goods and / or services
which receives tax invoices issued under Section 23 towards receipt of input
services and issues tax invoices for the purpose of distributing credit of CGST
/ SGST and / or IGST paid on the said services to a supplier of taxable goods
and / or services having the same PAN as that of the office referred above.
•
Manner of distribution prescribed in Draft ITC Rules- Rule 4
Copyright 2016, Lakshmikumaran & Sridharan / Confidential
Seamless Flow of ITC - ISD
Location of
Supplier
Location of
Immovable property
a.
State A
State A
b.
c.
Supplier will charge local SGST and
CGST
Receiver located in State B cannot
take ITC of SGST charged by Supplier
in State A
Blockage of seamless flow of ITC
SOLUTION : Input service distributor?
State B
Location of Service
Receiver
Copyright 2016, Lakshmikumaran & Sridharan / Confidential
Transitional Provisions
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Transitional Provisions – Retrospective price increase
Malanpur ( Steel Division)
 Steel Prices are volatile- Upward or downward price variation
 For upward price revision- GST is payable on such revision
 Credit Note to be raised within 30 days of price revision
What if credit note is not raised within 30 days?
Interest payable?
Transitional Provisions : Depots eligibility for credit
Manufacturing
Depots
Ghaziabad
Bangalore
• Whether credit of eligible duties held in stock will be available?
 Credit will be available in respect of inputs held in stocks and inputs contained
in semi finished goods or finished goods.( Section 140(3) of the GST Bill)
Valuation
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Consideration for a Supply





Consideration – Inclusive definition

payment by recipient of the supply or any other person

nexus between the payment and the supply

Excise – consideration by buyer only
Any payment in money or otherwise
Monetary value of any Act or Forbearance

‘in respect of’, a supply

‘in response to’, a supply

‘for the inducement of’, a supply.
Deposit – (refundable or not) – Consideration
Deposit vs Advance ?
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Supply
Consideration
Valuation principle – “Transaction Value”
 Value of taxable supply- Transactional Value
Three conditions
 Price actually paid or payable
 Supplier and recipient of the supply
are not related
 Price is the sole consideration for the supply
 If conditions not met- Resort to Valuation Rules.
 MRP based valuation- Not applicable under GST.
Copyright 2016, Lakshmikumaran & Sridharan / Confidential
Inclusions in value of supply
• Any taxes, duties, cesses, fees and charges levied under
any other statute, if charged separately
• Expenses incurred by recipient of supply for which
supplier is liable
• Incidental expenses, such as, commission and packing,
charged by the supplier to the recipient of a supply
• Interest or late fee or penalty for delayed payment of any
consideration for any supply
• Subsidies directly linked to the price excluding subsidies
provided by the Central and State governments
Discounts – Excluded from Transaction Value
• Discounts allowed before or at time of supply
– duly recorded in invoice
• Discounts allowed after supply has been made
– established as per agreement
– known at or before the supply
– specifically linked to invoice
– input tax credit reversed by recipient
Draft Valuation Rules






Value of supply where consideration is
not wholly in money (Rule 1)
Value
when
supply
between
distinct/related persons, other than
through an agent (Rule 2)
Value when supply of goods
made/received through an agent (Rule
3)
Value of supply based on cost (Rule 4)
Residual method (Rule 5)
Determination of value in case of
specific supplies (Rule 6)
Copyright 2016, Lakshmikumaran & Sridharan / Confidential
Hierarchy of Valuation Rules:
 Rule 4 to be applied only
when value cannot be
determined as per Rules 1 to
3.
 Rule 5 to be applied when
value not determinable as per
Rule 1 to 4.
 For determining value of
service under Rule 5, Rule 4
can be ignored
Stock Transfer
Stock Transfer to Depot
Bangalore Depot
Malanpur Plant
(M.P)
•
•
What is value at which tax is to be paid? (Valuation Rules to be referred to)
Additional Cash Flow Requirements
IGST will be leviable
59
Other Specific Issues
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Status of Exempted Kashipur unit
•
GST Objective: Create one common market and free flow of credit to
supply chain
•
For achieving objective, exemption scheme may be converted to
refund scheme
•
First Discussion Paper on GST – Conversion of exemption schemes to
refund schemes
•
Whether full refund of CGST or value additions limits to be
prescribed for all units availing area based exemption (as existing
for North Eastern States & J&K)?
•
Under Article 279A of Constitutional Amendment Bill, GST Council
to make recommendations on special provisions
•
GST Bill makes no reference to area based exemptions
Treatment of Advances
 Time of Supply : Date of receipt of advance
Advance for goods paid to SRL
Receipt voucher to be
issued under Section 31(3)
of GST Bill
•
•
Customer
In case no supply takes place
against advance payment –
Refund Voucher
•
Issues
Advance/Deposit
Advance –received
against identified goods?
Rate to be applied for
payment of GST on
Advances
62
Works Contract
PRESENT SCENARIO :
• SRL enters into contract for supply &
installation of LED lights
Issue:
 Whether works contract?
OR
 Whether composite supply?
GST SCENARIO :
 Works contract = Deemed service
 Only immovable property covered
Copyright (c) 2016. Lakshmikumaran & Sridharan / Confidential.
Job work in GST Scenario – Section 143
•
•
Principal
Job-worker
Removal from
Job-worker
Removal from
Principal
•
Principal
•
•
Customer
Interstate ? – permission from 4 authorities ?
GST on job charges to be levied as
service
Job-work procedure allowed without
payment of tax
Job-workers is allowed to return the
goods to any place of business of
•
Declaration by Principal for jobworkers premises as his ‘additional
place of business’ if cleared from his
premises
Valuation of Goods will be done as
per Valuation rules
Specific inclusion of intermediate
goods in “inputs” (In GST Bill)
GST – Practical Issues
• Series of Invoices in same state with same GSTN
• Installation services done at place where no registration
• Sales order in the name and address of Regional Officesupply to be made from plant
• Corporate Guarantee provided to related company
• Free issue of material by SRL to distributor
• Captive consumption
• CSR by way of running schools/hospitals on FOC basis
• Perquisite to employees