Update on GST January 2019


GST Updates: Summary of recent Notifications and Circulars

Based on the recommendations of the GST Council in its 31st meeting held on 22nd December, 2018.

A. SUMMARY OF REMOVAL OF DIFFICULTIES ORDERS

1.1 Extension in time to make amendments in details furnished in Form GSTR-1 pertaining to financial year 2017-18 (Order No 2/2018 - Central Tax)

  1. The time limit for rectification of errors (details furnished erroneously) and rectification of omissions (details not furnished) has been extended.
  2. Any invoices, debit notes or credit notes pertaining to the financial year 2017-18, which have either not been reported or have been incorrectly reported maybe rectified in Form GSTR-1 till the due date of filing of the return for the month of Mar ‘19 or for the quarter Jan '19 to Mar '19.
  3. Subsequently, the differential tax payment, if any, is allowed to be made through the GSTR-3B of months Oct '18 to Mar '19.
  4. Applicable interest is required to be paid.

TEAM Comments: Rectifications were allowed to be made only till the due date of furnishing the Form GSTR-1 of September 2018. The same has now been extended to March 2019. Reconciliations should be made to identify the invoices, debit notes and credit notes which have not been reported or have been erroneously reported. The same should be done as soon as possible to limit the interest implications. Also, if any credit note is rectified due to any error or omission, the recipient of the supply should be asked to reduce the credit of input tax to so that the liability reduction claimed on credit note by the supplier is valid.

Though the Government has made amendment in the section 37 to provide for declaration of any correction or omission, no such corresponding amendments have been made in the section 39 (which deals with the GSTR-3/GSTR-3B). This has created a doubt as to whether such additional disclosure as made in GSTR-1 can be made in GSTR-3B or not. It is expected from Government to issue suitable clarification for the same so that the objective of the removal of difficulty order could be achieved.

1.2 Extension of the due date for availing ITC on the invoices or debit notes relating FY 2017-18. (Order No 2/2018 - Central Tax)

  1. The time limit for availment of ITC on the invoices pertaining to the FY 2017-18was the due date of filing of return for the month of September, 2018. (section 16 (4) of CGST Act]
  2. A proviso has been inserted in the said sub section to provide that the registered person shall be entitled to avail ITC till the due date of filing of return for the month of March 2019. Hence, the order has extended the time limit for taking credit pertaining to the invoices relating to FY 2017-18.
  3. However, it is to be noted that the proviso has been inserted with a condition that credit may be availed only for such invoices which have been uploaded by the supplier in their Form GSTR-1 which is till the due date of furnishing Form GSTR-1 for March 2019. If the supplier fails to declare the invoice in the Form GSTR-1 of this period, the credit may not be allowed to the recipient even if he/she may be having physical copy of invoice with him/her.
  4. Such details in Form GSTR-2A maybe reflected due to uploading of invoices /debit notes by the supplier till the month of March 2019.

TEAM Comments: Many of the registered persons could not avail ITC within the due date of September, 2018 for the invoices pertaining to the previous financial year already accounted for in the booksof accounts. The revised extension could give them opportunity to avail such missed out credits. However, they need to ensure that the supplier makes necessary addition/amendment in their Form GSTR-1 before the due date of March 2019 as only such credits would be allowed which are reported by the supplier in Form GSTR-1 and thus appearing in the Form GSTR-2A of the recipient.

The missed credits not recorded in the books may also be similarly rectified but the credit would be available only in the year 2018-19 as it appears. This is unfair and unless further enablement is done this could be the bitter pill to be swallowed due to inefficient reconciliation or accounting.

1.3 Extension of the due date for furnishing of annual returns in FORM GSTR-9, FORM GSTR-9A and reconciliation statement in FORM GSTR-9C for the FY 2017-2018 (Order No 3/2018 - Central Tax)

As per section 44(1) of CGST Act 2017, every registered person, other than a few exceptions, is required file an annual return (GSTR 9) for FY 17-18 on or before 31st December, 2018. This due date has been extended up to31st March, 2019 by Order 1/2018-Central Tax. This is now further extended up to 30th June, 2019.

TEAM Comments: Annual return is a summary return for the entire year and details such as outward supplies made during the year, input tax credit taken during the year, etc. have to be mentioned. Revised formats of GSTR-9, GSTR-9A and GSTR-9C have also been issued in Notification 74/2018 - Central Tax (Non-Rate). Since there is still much clarity required it is possible that some more changes in the form _ in instruction need to be made. However keeping all reconcilations ready and await the form advisable.

1.4 Extension of due date for filing of form GSTR 8 (Order No. 4/2018 - Central Tax)

The due date for furnishing the statement in FORM GSTR-8 by E-commerce companies for the months of October 2018 to December, 2018 has been extended till 31st January, 2019.

TEAM Comments: E-commerce operators are required to file a statement in FORM GSTR - 8 electronically, containing the details of outward supplies of goods or services or both effected through it, including the supplies of goods or services or both returned through it, and the amount collected during a month, within 10 days after the end of such month. The time limit has been extended till 31st January, 2019 for the purpose of filing of the Return by such category of persons.

B. SUMMARY OF NOTIFICATIONS ISSUED UNDER CGST

2.1 Extension of time limit for various forms


Notification no.

Name of the Form

To be filed by

Period

Previous Due Date

Revised Due Date

67/2018

Details for activating Migration to Nodal Officer

Persons who have been granted provisional identification (PID) number only till 31.12.2017 but couldn't migrate

NA

31-Aug-18

31-Jan-19

67/2018

E-mail to migration@ gstn.org.in

Persons who have been granted PID (under special migration procedure) and who have filed GST REG-01 and obtained the ARN, a new GSTIN and a new access code

NA

30-Sept-18

28-Feb-19

68/2018, 69/2018 & 70/2018

Form-GSTR-3B

Persons who have been granted provisional identification PID number (under special migration procedure)

Jul' 17-Feb' 19

31-Dec-18 (for Jul'17 to Nov'18)

31-Mar-19

71/2018

Form-GSTR-1

Persons having aggregate turnover of up to 1.5 crore rupees in the preceding financial year or the current financial year, and who has been granted PID number (under special migration procedure)

Jul‘ 17-Dec' 18

31-Dec-18 (for Jul' 17 to Sept' 18)

31-Mar-19

72/2018

Form-GSTR-1

Persons having aggregate turnover of more than 1.5 crore rupees in the preceding financial year or the current financial year, and who has been granted PID number (under special migration procedure)

Jul' 17-Feb‘ 19

31-Dec-18

( for Jul '17 to Nov '18)

31-Mar-19

78/2017

Form ITC-04

Principals who were dispatching goods to a job worker - details of goods sent for job work and details of goods receipt after job work

Jul'17 to Dec‘ 18

31-Dec-18

(for Jul' 17 to Sept' 18)

31-Mar-19


2.2 Provisions of Tax Deduction at Source (TDS) not applicable for supplies amongst the persons who are liable to deduct tax. (Notification No 73/2018- Central Tax)

A proviso has been added to the notification No. 50/2018-CT to exclude the supply of goods or services or both from the provisions of TDS section 51 of the CGST Act. In effect no TDS will be deductible with respect to inter se supplies between the following persons:

  1. A department or establishment of the Central Govt. or State Govt.
  2. Local Authority
  3. Governmental Agencies
  4. Persons notified by the Govt. which are as follows:

(a) An authority or a board or any other body,

(i) Set up by an Act of Parliament or a State Legislature; or
(ii) Established by any Government, With 51% or more participation by way of equity or control, to carry out any function;

(b) Society established by the CG or the SG or a Local Authority under the Societies Registration Act, 1860;
(c) Public sector undertakings.

2.3 Waiver of late fees in respect of delay in filing of returns for specified category of tax payers

Waiver of late fee for GSTR-1

The Government has, vide Notification no. 75/2018-Central Tax, has waived the late fees in case of registered persons who failed to file return in FORM GSTR-1 for the months/quarters from July, 2017 to September, 2018 by the due date subject to them furnishing the said return between the period from 22nd December, 2018 to 31st March 2019.

Waiver of late fee for GSTR-3B

The Government vide Notification No. 76/2018-Central tax has waived the late fees in case of registered persons who failed to file return in Form GSTR 3B for the months July, 2017 to September, 2018 by the due date subject to them furnishing the said return between 22nd December 2018 to 31st March 2019. The Notification operates prospectively i.e. the persons who had filed the return before 22nd December 2018 are not allowed the refund of waived fees.

Waiver of late fee for GSTR-4

The Government vide Notification No.77/2018, has waived the late fees in case of registered persons who failed to file return in FORM GSTR-4 for the months/quarters from July, 2017 to September, 2018 by the due date subject to them furnishing the said return between 22nd December, 2018 to 31st March, 2019.

TEAM Comments: As per section 47 of CGST Act 2017, any person who fails to furnish his returns within the stipulated time is required to pay late fee at the time of furnishing of the returns. Being the first year of introduction of the new GST tax, the GSTN portal has faced a lot of technical problems due to which hardships have been caused to various genuine tax payers. Therefore, government has decided to waive the late fee on delay in filing of the returns GSTR-1, GSTR-3B and GSTR-4 by way of above notifications respectively. However, the relief is not extended to the registered persons who have already filed the returns (though belatedly), which in our view doesn't seem to be a positive measure.

2.4 Extension of jurisdiction of central tax officers (Notification No 79/2018 - Central Tax)

The Principal Commissioner and Commission of Central Tax (and officers subordinates to him) have been cross empowered to exercise jurisdiction over territorial jurisdiction of other Principal Commissioner or Commissioner of Central Tax falling within the jurisdiction of same Principal Chief or Chief Commissioner with respect to adjudication under Section 73, 74, 75 and 76 of the CGST Act. Although such jurisdiction shall be subject to the assignment by Board.

TEAM Comments: Section 5 of CGST Act 2017 defines the powers imposed on Central Tax officer or any other officer subordinate to him. With effect from this notification, the powers of the Central Tax officer has been extended to throughout the territorial jurisdiction of his corresponding Principal Chief Commissioner/ Chief Commissioner of Central Tax.

C. CHANGES IN THE FORMAT OF ANNUAL RETURN UNDER FORM GSTR 9

3.1 Details of outward and inward supplies liable to RCM made during the financial year - (Part-II) to be prepared based on GSTR-3B

There was lack of clarity as to whether GSTR-9 has to be prepared on the basis of GSTR-1 or GSTR-3B. It has been clarified that all the supplies for which payment has been made through FORM GSTR-3B between July 2017 to March 2018 shall be declared in the part II of the GSTR-9.

3.2 All supplies effected during year 2017-18 to be reported in GSTR-9

The heading of part-II earlier read that only such outward and inward supplies has to be declared in the GSTR-9 which has been declared in the Return filed during the financial year. This was leading to an interpretation that GSTR-9 is merely reproduction of the information contained in the periodical returns and no correction/rectification is being permitted in the GSTR-9.

The heading of the Part-II has been amended whereby the terminology 'declared in the return filed during the year' has been omitted. Consequent to such amendment, all supplies effected in the year 2017-18 to be reported in the Annual Return.

3.3 GSTR-1 and GSTR-3B to be filed before filing of GSTR-9

It has been clarified in the instruction to form GSTR-9 that it is mandatory for a registered person to file all GSTR-1 and GSTR-3B for the FY 2017-18 before filing of GSTR-9. Hence, all registered persons need to ensure filing of periodical returns before proceeding for filing off GSTR-9

It is to be noted that taxpayers can take the benefit of extension in the date of filing of GSTR-1 for the purpose of making disclosure of omission or correction.

3.4 Additional liability to be paid through Form DRC-03

While filing of GSTR-9, if any transactions are noticed which result in additional liability, it may be declared in GSTR-9 and such additional liability may be paid through FORM DRC -03. Taxpayers shall be required to select 'Annual Return' in the drop down provided in DRC-03. Liability can only be paid through electronic cash ledger.

3.5 Changes in heading of Part-III

The heading of Part-III has been changed from 'Details of ITC as declared in returns filed during financial year' to the 'Details of ITC for the financial year'.

3.6 ITC availed for the previous financial year - Table 13

It shall include any ITC reversed in the FY17-18 as per proviso to sub-section (2) of Section 16 (delay in payment to vendor beyond 180 days) but was reclaimed in the FY18-19.

3.7 Supplies on which tax is to be paid by the recipient under RCM - Table 5C

Any supplies made by the taxable person where liability is required to be paid by the recipient of supply was required to be disclosed in the Table 5C. The details to be given therein was value of supplies and tax payable thereon. However, as there is no liability of the supplier to charge tax in such cases, amendment has been proposed in the form GSTR-9 whereby the supplier is not required to disclose the tax amount. Only the taxable value shall be disclosed in this Table.

3.8 Change in Table 8E and 8F

Table 8E & 8F shall now include amounts not disclosed in GSTR-2A. Earlier, only such amount has to be disclosed in the above Tables which was covered under GSTR-2A but was not declared under GSTR-3B (i.e. out of Table 8D). Now, the supplier is required to disclose the credit not availed in GSTR-3B and ineligible credit as per GSTR-3B in this table. Ideally, if 8D is positive, the sum of 8E and 8F shall be equal to 8D.

3.9 HSN wise summary of inward supplies - Table 18

It has been clarified that HSN summary is required to be disclosed for only those supplies that independently accounts for 10% or more of total value of inward supplies. The clarification would be applicable both for inward supplies of goods as well as services.

3.10 ITC availment not to be permitted through GSTR-9

It has been clarified that the registered person cannot claim any ITC unclaimed during FY17-18 through this return. All unclaimed ITC has to be claimed through GSTR-3B only for which Government has extended the due date till the month of filing of Return for March 2019.

TEAM Comments: The amendment proposed in the GSTR-9 is welcome move as it has considered most of the demand made by the industries. Being first year of implementation of GST, there was need to have a flexible form which could give opportunity to tax payers to rectify the errors noticed if any at the time of preparation of GSTR-9 which has been attempted to be achieved through revised form. Though there is still some ambiguity as to few of the aspects of GSTR-9, it is expected to that suitable clarifications on the same by Government in the due course of time.

D. CHANGES IN THE FORMAT OF RECONCILIATION STATEMENT UNDER FORM GSTR 9C

4.1 Corrections in Table 5

Corrections have been done by substituting (+) in 5E and (-) in 5J of Part-A of GSTR-9C. These changes pertain to disclosure of credit notes in the GSTR-9C. Earlier, there were mention of wrong sign (+/-) which has now been rectified.

4.2 Verification of registered person

The responsibility of getting the audited done and uploading of the GSTR-9C along with other details/documents is responsibility of the registered person. Hence, a declaration has been added at the end of the reconciliation statement whereby the registered person agrees to the following:

'I hereby solemnly affirm and declare that I am uploading the reconciliation statement in FORM GSTR-9C prepared and duly signed by the Auditor and nothing has been tampered or altered by me in the statement. I am also uploading other statements, as applicable, including financial statement, profit and loss account and balance sheet etc'.

4.3 GSTR-1 and GSTR-3B to be filed before filing of GSTR-9C

It is mandatory to file all FORM GSTR-1, FORM GSTR-3B and FORM GSTR-9 for the FY 2017-18 before filing this return. The details for the period between July 2017 to March 2018 are to be provided in this statement for the financial year 2017-18. The reconciliation statement is to be filed for every GSTIN separately

Additional liability to be paid through Form DRC-03

There could be possibility of liability being pointed out by the auditor in the course of certification of reconciliation statement. Towards the end of the return, taxpayers shall be given an option to pay any additional liability declared in this form, through FORM DRC-03. Taxpayers shall select 'Reconciliation Statement' in the drop down provided in FORM DRC-03. It may be noted that such liability shall be paid through electronic cash ledger only.

TEAM Comments: Some of the anomaly in the GSTR-9C has been corrected through the amendment. Nevertheless, the form still continues to be exhaustive which could have been simplified in the first financial year.

E. NOTIFICATIONS ISSUED ON REVERSE CHARGE OF SERVICES

5.1 Services covered in RCM (Notification No. 29/2018 - Central Tax -Rate)

Notification No. 29/2018-CT (R) has been issued to expand the scope of supplies covered under reverse charge mechanism. The scope has been widened to cover few of the sectors who may comprise largely of the unorganised sector and hence the burden has been put on the recipient of supply to pay the tax. Following changes have been made:


Nature of Service

Service Provider

Person liable to pay tax

Business facilitating services

Business Facilitator (BF)

A banking company, located in the taxable territory

Services provided by the agent of business correspondent to business correspondent

An agent of business correspondent (BC)

A business correspondent, located in the taxable territory

Security services (supply of security personnel) provided to a registered person

{In following specified categories of recipient of services, liability continues to be on the service providers only under forward charge-

Persons registered for TDS

  • Department/establishment of CG, SG or UT
  • Local authority
  • Government agencies

When above authorities have taken registration only for the purpose of TDS but not for making taxable supplies

Persons registered under composition scheme}

Any person other than a body corporate

A registered person, located in the taxable territory


TEAM Comments: Security service providers may provide only services of supply of security personnel or there may be supply of value additive services also where in addition to security personnel, other combination of services is also provided. The reverse charge provisions have been introduced only where services provided are in the nature of ‘supply of security personnel' only. Further, the tax has to be paid under reverse charge mechanism on the gross amount charged (security personnel cost+PF+ESI+service charges+ other charges) by the security service providers and not merely on the service charges. There could be marginal increase in the cost of security services as the supplier of services would not be entitled to avail ITC on various expenses incurred by it (i.e. uniform of employees etc).

Above amendments mentioned have become effective from 01-01-2019. There could be many instances where payment to Supplier has been made in advance, or where services have been received prior to 01-01-2019, however invoice is issued or payment has been made after the effective date. Some instances are provided below:

Services supplied before 1st January, 2019


Date of Invoice

Date of payment

Time of Supply

Applicability of Reverse Charge

20.12.2018

30.12.2018

20.12.2018

Wherever services have been provided prior to 01.01.2018 and invoice has been issued by the service providers prior to such date, no liability under RCM arises even if the payment to the supplier has been made post 1.1.2019, as the time of supply has arisen prior to such date only.

10.12.2018

31.01.2019

10.12.2018

10.12.2018

25.12.2018

10.12.2018


However, in case the services are provided during Dec '18 and the invoice in this respect has been issued during Jan '19 in terms of section 31 of the Act (assuming no advance received); the time of supply would be Jan '19 and the said services would be liable under RCM.

Services supplied on or after 1st January, 2019


Date of Invoice

Date of payment

Time of Supply

Applicability of Reverse Charge

31.01.2019

05.02.2019

31.01.2017

RCM would be applicable

31.01.2019

12.12.2018 (Advance payment)

12.12.2018

No RCM

31.01.2019

Total Payment: Rs. 5 Lacs

  • Advance paid on 12.12.2018: Rs. 3 Lacs
  • Rs. 2 Lacs on 05.02.2019

12.12.2018

05.02.2019

RCM not applicable for Rs. 3 Lacs.

However, w.r.t Rs.2 Lacs liability would vest on the service recipient under RCM.


5.2 No RCM when GTA services provided to specified entities (Notification No. 29/2018- Central Tax -Rate)

The scope of reverse charge notification has been amended to provide that no RCM provision would be applicable in case of Goods transport services by Goods Transport Agency to the following entities when they (recipient of supply) have taken registration only for the purpose of making compliance of TDS provisions.

  1. Department or Establishment of the Central Government or State Government or Union Territory; or
  2. local authority; or
  3. Governmental agencies

TEAM Comments: The above-mentioned entities, when taken registration only for the purpose of making compliance of TDS, should not be burdened with the requirement to pay GST under reverse charge mechanism. However, if the entities have taken registration as a supplier of goods/services in addition to registration required for TDS, the liability to pay GST under RCM would be on such Government agencies.

F. CHANGES IN CGST RULES 2017

(Notification 74/2018 - Central Tax)

6.1 Clarification regarding TDS/ TCS registration

A registered person liable to deduct TDS/TCS can now get himself registered in the State or UT in which he does not have any physical presence by providing following details in the given Parts of FORM GST REG-07:

  • Part A- name of the state or UT where the person intends to take the registration.
  • Part B- name of the state or UT where such registered person has its physical presence.

TEAM Comments: A person required to pay TDS/TCS may be required to take registration in a State where he does not have place of business. The registration application format has been simplified to provide that such person need not own any place in such State where he intends to take registration. He may obtain registration based on his registration in the principal State in which he is registered (say Haryana) and provide the details of additional State in which registration is sought to be obtained (say Gujarat), where no physical place exists.

6.2 Changes in relation to new ITC-04 format

Details of challans by which goods are sent by one job worker to the other job worker are not required to be disclosed in the ITC-04 as per the new format. Therefore, the words 'or sent from one job worker to another' have been omitted in Rule 45(3) of CGST Rules 2017

TEAM Comments: Furnishing of details of movement of goods by one job worker to another job worker in ITC-04 was tedious task in many industries especially where a product passes through multiple job work processes. It was becoming difficult for the principal to keep track of the inter-se movement of goods between job worker and report the same in ITC-04. Proposed amendment has simplified the process where-under the principal is required to disclose the details of goods sent by him to job worker and received back from job worker removing the need of reporting inter-se job work movement. A welcome move for simplification in compliance.

6.3 Contents of electronic Invoice or Bill of Supply:

Signature or digital signature of supplier or authorized representative of supplier not required on electronically issued invoice or Bill of Supply so long as such invoice is issued in accordance with the provisions of the Information Technology Act, 2000.

TEAM Comments: With technological advancement, invoices/documents etc. are issued through electronic means. There was requirement to affix the signature or digital signature on the invoice to make it a valid document under GST Act. The amendment has been proposed in the Rule whereby it has been provided that even if the document does not bear the manual or digital signature, it would be considered as valid invoice provided it is raised in accordance with the provisions of the Information Technology Act. Hence, the invoice which bears that 'this is computer generated invoice and does not require signature' would be a valid invoice if the same is in accordance with Information Technology Act.

6.4 Refund application (shipping bill) for IGST on export of goods eligible on filing departure manifest

Refund application shall be deemed to be filed, when the person in charge of the conveyance carrying the export goods duly files a departure manifest or an export manifest or an export report.

TEAM Comments: In case of export of goods on payment of IGST, the refund is allowed when the export manifest is filed by the person in charge of the conveyance. However, there was amendment in the Customs Act w.e.f. 28.3.2018 pursuance to which a reference was made to departure manifest also in addition to export manifest or export report. The amendment has been proposed in the Rule to make it at par with the customs provisions.

6.5 Audit under Section 65

The period of audit has been rectified as a financial year or part thereof or multiples thereof.

TEAM Comments: This is a corrective amendment wherein it has been clarified that department may undertake the audit for a complete financial year or part thereof also.

6.6 Non-filers of return not able to furnish information in Part A of FORM GST EWB-01.

  1. A registered taxpayer (whether registered as composition dealer or as a normal taxpayer) shall not be allowed to furnish the details in Part A of FORM GST EWB-01, if:
    • Person paying tax under composition scheme has not furnished the returns for two consecutive tax period
    • Other persons (monthly or quarterly return filers) have not filed the return for a consecutive period of 2 months.
  2. However, commissioner may, on sufficient cause being shown and for reasons to be recorded in writing, allow furnishing of the said information in PART-A of FORM GST EWB 01.
  3. Further, it has been provided that the person shall be provided with a reasonable opportunity of being heard, before making any order for rejecting his request of furnishing the details in FORM GST EWB 01.
  4. Any permission granted or rejected by Commissioner of State or UT shall be deemed to be granted or, as the case may be, rejected by the Commissioner.

The amendment would become effective from a date to be notified later on.

TEAM Comments: The amendment is proposed to improvise the compliance mechanism whereby restriction would be placed for the non filers to generate E-way bill. Here, it is to be noted that the restriction has been linked with the filing of Return where Return means GSTR-3B. Hence, if a person files GSTR-3B but fails to file GSTR-1, he should be allowed to generate E-way bill under this provision. This provision will come into effect from a date to be notified in future.

6.7 Order for payment of self assessed tax and interest thereon to be updated in from DRC-07

Any order passed under provision of section 75 (12) for recovery of tax and interest on self-assessed tax shall be uploaded by the proper officer in the form GST-DRC 07.

TEAM Comments: Section 75 (12) of CGST Act provides that where any amount of self assessed tax in accordance with the Return filed under section 39 or interest thereon remains unpaid, it shall be liable to be recovered irrespective of the time limit or any other provisions contained in provisions to section 73 and/or 74. There was no provision as to the manner in which the order passed by the proper officer has to be uploaded. Now, it has been provided that the summary of order passed by the proper officer shall be uploaded in form DRC-07 and it shall be treated as notice for recovery.

6.8 Notice by the Revisional authority

  1. Revisional authority is an "authority appointed or authorized for revision of any erroneous decision or orders passed by any officer subordinate to him"
  2. It has been inserted by way of Rule 109B that where the Revisional Authority decides to pass an order in revision which is likely to affect the person adversely, the Revisional Authority shall serve on him a notice in FORM GST RVN-01 and shall give him a reasonable opportunity of being heard.
  3. Along with this, Revisional authority shall issue a summary of the order in FORM GST APL-04 clearly indicating the final amount of demand confirmed.

(Note: Format of FORM GST RVN-01 and FORM GST APL-04 have been provided by way of Notification 74/2018-Central tax)

G. REFUNDS RELATED ASPECTS

CONCEPTUAL CLARITIES

7.1 Calculation of refund amount for claims of refund of accumulated ITC on account of inverted duty structure (Circular No. 79/2018)

The amount of refund eligible in case of refund on account of inverted duty structure is determined as per Rule 89(5) which provides:

Maximum refund amount = {(Turnover of inverted rated supply of goods and services) * Net ITC /Adjusted Total Turnover} - Tax payable on such inverted rated supply of goods and services

  • While calculating the amount of refund as per the formula specified above, department officers contended that the amount of Net ITC should not include the ITC of GST paid on inputs procured at equal or lower rate of GST than the rate of GST on outward supply.
  • In relation to above, it has been clarified that the contention taken by department officers is wrong as the amount of refund is of unutilized ITC and that eligibility of refund under sub-section (3) of section 54 is not determined on the basis of rate of tax applicable to inputs. Tax rate on output supply being less than the rate of inputs is the reason of ITC accumulation for which refund is claimed.
  • For instance,

Particulars

Amount

Turnover of inverted rated supply of goods taxable @12%

1000

ITC on Input A taxable @5% {X}

30

ITC on Input B taxable @18% {Y}

100

Amount of Net ITC under Rule 89(5) {X+Y}

130

Adjusted Total Turnover

1000

Tax payable on outward supplies (1000*12%)

120

Maximum refund amount under Section 54(3)

{(1000)*130/1000}-120

10


It is evident from above table that ITC on all inward supply of inputs have to be considered, not on selective basis.

TEAM Comments - The refunds were being denied by authorities on the ground that some of the inputs used in making inverted rated supply of goods had higher rate of tax and hence not entitled for refund. The circular has clarified correct position of the law that once it has been ascertained that the supplier is eligible for the refund under inverted duty structure, there is no need of referring to the rate of tax on the individual inputs. Credit being in the nature of pool, refund formula has to be applied on total input tax credits on account of inputs (raw material).

7.2 Refund of accumulated ITC of input services and capital goods arising on account of inverted duty structure (Circular No. 79/2018)

As per proviso to sub-section (3) of section 54, refund of unutilized ITC shall be allowed:

'Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies)'

  • Inputs, as defined under clause (59) of section 2, means 'any goods other than capital goods…'
  • Thus, ITC on account of input services and capital goods shall not be included in the value of 'Net ITC' for the purpose of Rule 89(5) and hence the same cannot be claimed as refund under section 54(3).

TEAM Comments - The clarification literally interprets the provision specified in Section 54(3) treating the refund eligibility for unutilized ITC on account of inputs only and thus ITC on account of capital goods and input services shall not be eligible for refund under inverted duty structure. However, it may be contended that the proviso to section 54(3) is only the determining criteria for claiming the refund under the said section and thus, ITC on capital goods and input services cannot be rejected by Rule 89(3).

7.3 Refund to be allowed on all ‘inputs' as the meaning and scope of term ‘inputs' is very wide (Circular No. 79/2018)

Definition of inputs under clause (59) of section 2 reads as follows:

'Any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business'

For the purpose of calculating the amount of Net ITC in the inverted duty, department rejected ITC on account of following claiming the same not directly consumed in the manufacturing process:

  • Stores and spares
  • Packing materials
  • Materials purchased for machinery repairs
  • Printing and stationery items

Thus, it has been clarified that since there is no restriction on the manner of use of inputs for making an outward supplies unless the same is used or intended to be used in the course or furtherance of business, ITC on items mentioned in point (b) above cannot be restricted and be included in the calculation of 'Net ITC' for the purposes of section 54.

TEAM Comments - The circular clarifies that the scope of term ‘inputs' is very wide enough without any need of establishing the nexus of inputs with output. Accordingly, the refund should not be denied on the alleged grounds.

7.4 Issues related to refund of accumulated ITC of Compensation Cess (Circular No. 79/2018)

1. Whether refund of compensation cess paid on inputs used for making zero rated supplies under LUT during the period July 2017 - May 2018 allowed in July 2018? What is the amount of compensation cess to be refunded?

Clarification:

  • Circular 45/2018-CGST clarifies that a registered person making export of goods under LUT shall be eligible for claiming the refund of compensation cess paid on inputs used for making such supplies.
  • A registered person, being eligible to claim refund of compensation cess paid during the period July 2017 - May 2018, shall calculate the refund amount for each month as per the formula specified in Rule 89(4), i.e.

Refund amount = (Turnover of zero rated supply of goods + Turnover of zero-rated supply of services)*Net ITC/Adjusted Total Turnover

  • The sum of the eligible amount calculated above for the period July 2017 - May 2018 should be less than or equal to the amount actually claimed as refund in the month of July 2018.

2. Whether refund of compensation cess paid on purchase of coal used for captive generation of electricity which is in turn used for manufacture of goods exported under LUT allowed?

Clarification:

Yes, refund shall be allowed even if input is not directly used for making zero-rated supplies.

3. Whether ITC reversed to be taken into consideration for calculating the amount of 'Net ITC' under Rule 89?

Clarification:

The meaning of Net ITC given in Rule 89(4) reads as follows:

'Input tax credit availed on inputs and input services during the relevant period other than…'

  • It has been clarified that the amount of ITC reversed as per the relevant provisions of the Act shall not be considered as ITC availed and thus not to be included while calculating the amount of Net ITC.
  • Hence, if there is reversal of ITC under Rule 42 of the CGST Rules, the refund shall be computed only on the amount claimed as credit net of reversal made under Rule 42.

TEAM Comments - The clarification for the refund of compensation cess is a welcome move as it would result in reducing the frivolous denial of refund by the department.

7.5 Non consideration of ITC of GST paid on invoices of earlier tax period availed in subsequent tax period (Circular No. 79/2018)

  1. Department has noticed that the field officers are excluding the invoices issued by the supplier in previous month but filed in GSTR-3B of current tax period for the purpose of calculation of refund of unutilized ITC filed for the current tax period.
  2. It contends that the definition of relevant period mentioned in Rule 89(4) restricts the inclusion of the same, which reads as follows:

'The period for which the claim has been filed'

  1. Thus, it has been clarified that refund claim filed for the relevant period is for the amount of Net ITC availed and not restricted only to the purchases made during the period. Moreover, section 16(4) also allows the registered person to claim ITC on or before the due date of filing of return for the month of September following the financial year to which the invoice pertains or the date of filing of annual return, whichever is earlier.
  2. Hence, if the invoice pertaining to the month of September on which ITC has been availed in the GSTR-3B of the month of October, the ITC for refund computation purpose would be considered for the month of October irrespective of the date of invoice or appearance in GSTR-2A.

7.6 Amendment in Rule 89(5) (Notification 74/2018 - CT)

Prior to amendment, explanation (b) to sub-rule (5) of rule 89 read as follows

'Adjusted Total turnover' shall have the same meaning as assigned to it in sub-rule (4).'

  • Now, the above has been amended to include relevant period also, thus, it reads:

'Adjusted Total turnover' and 'relevant period' shall have the same meaning as assigned to them in sub-rule (4).'

PROCEDURAL CLARITY

7.7 Physical submission of refund claims with jurisdictional proper officer (Circular No. 79/2018)

GST RFD-01A application and supporting documents shall be furnished electronically.


Requirements before issuance of circular

Requirements after issuance of circular

All documents / undertakings / statements were submitted manually.

The same can be submitted electronically on the common portal at the time of filing the claim of refund in FORM GST RFD-01A.

In case export was being made without payment of tax, all the invoices pertaining to inputs, input services and capital goods for processing of refund were also required to be submitted manually.

A statement of invoices in a prescribed format and copies of only those invoices the details of which are not found in FORM GSTR-2A for the relevant period are required to be furnished electronically.


However, the taxpayer will still have the option to physically submit the refund application along with supporting documents. A taxpayer who still remains unallocated to the Central or State Tax Authority will necessarily have to submit the refund application physically.

7.8 Transfer of refund application (Circular No. 79/2018)

Transfer of refund application along with supporting documents to Jurisdictional Officer shall be done electronically and the earlier requirement of physically submitting and transferring the documents have been done away with.

7.9 Rectified application to be treated as a fresh refund application, will be submitted manually in the office of the jurisdictional proper officer. (Circular No. 79/2018)

7.10 Disbursal of refund amounts after sanction (Circular No. 79/2018)

  1. All tax authorities are advised to issue the final sanction orders in FORM GST RFD-06 within 45 days of the date of receipt of application (ARN) so that the disbursement is completed within 60 days by both Central and State Tax Authorities for CGST / IGST / UTGST / Compensation Cess and SGST respectively
  2. If any tax ordered to be refunded is not refunded within 60 days of the date of receipt of application, interest at the rate of 6 per cent on the refund amount starting from the date immediately after the expiry of sixty days from the date of ARN till the date of refund of such tax shall have to be paid to the claimant.

7.11 Refund applications that have been generated on the portal but not physically received in the jurisdictional tax offices before issuance circular no. 79. (Circular No. 79/2018)

Where the amount of refund is less than Rs. 1000/-

All refund applications in which the amount claimed is less than the statutory limit of Rs. 1,000/- will be rejected and the amount re-credited to the electronic credit ledger of the applicant through the issuance of FORM GST RFD-01B.

Where the amount of refund is more than Rs. 1000/-

  • Where an application has not been received by the jurisdictional tax office within a period of 60 days starting from the date of generation of ARN, an email may be sent to the applicant to submit the application again to the jurisdictional tax office within 15 days of the date of the email. The contact details and the address of the jurisdictional officer may also be provided in the said communication
  • If the applicant fails to physically submit the application within 15 days of the date of the email, the application shall be summarily rejected and the debited amount, if any, shall be re-credited to the electronic credit ledger.

For refund of excess balance from the electronic cash ledger

  • The amount already debited in the electronic cash ledger in such applications may be re-credited through FORM GST RFD-01B provided that there are no liabilities in the electronic liability register.
  • The said amount shall be re-credited even though the return in FORM GSTR-3B, as the case may be for the relevant period has not been filed.

H. SUMMARY OF CHANGES IN RATE & EXEMPTIONS PROVIDED FOR SERVICES


Sr. No

Subject

Particulars

Notification / Circular Number

Summary

1

Reduction in rate of tax

Transportation of passengers by air in respect of religious pilgrimage

Notification No. 27/2018 - Central tax (Rate)

Refer Point 8.1

Third Party insurance premium of 'goods carriage"

Notification No. 27/2018 - Central tax (Rate)

Refer Point 8.2

Tax on Cinema Tickets

Notification No. 27/2018 - Central tax (Rate)

Refer Point 8.3

2

New services made taxable

Services in relation to solar power generating plant and other renewable energy plants taxable at 18%

Notification No. 27/2018 - Central tax (Rate)

Refer Point 8.4

3

Clarifications

Supply of food by educational institutions taxable at 5% only when supply is made by a third party on contract basis

Notification No. 27/2018 - Central tax (Rate)

Refer Point 8.5

Scope of multimodal transport restricted from a place in India to another place in India

Notification No. 30/2018 - Central tax (Rate)

Refer Point 8.6

Services by Asian Development Bank & International Finance Corporation

Circular No. 83/02/2019 - Central Tax

Refer Point 8.7

4

New exemptions provided to services

Services provided by GTA to Government Departments

Notification No. 28/2018 - Central tax (Rate)

Refer Point 8.8

Services provided by banks to BSBD account holders

Notification No. 28/2018 - Central tax (Rate)

Refer Point 8.9

Guarantee services provided by CG/SG to their PSU's on loans taken from banks

Notification No. 28/2018 - Central tax (Rate)

Refer Point 8.10

Services supplied by rehabilitation professionals

Notification No. 28/2018 - Central tax (Rate)

Refer Point 8.11

5

Exemption Withdrawn

Services provided by IIM's to its students by way of educational programmes

Notification No. 28/2018 - Central tax (Rate)

Refer Point 8.12

6

Change in Rate of Tax

Leasing or renting of goods to attract same rate of tax as that of the vehicle

Notification No. 27/2018 - Central tax (Rate)

Refer Point 8.13


8.1 Transportation of passengers in respect of religious pilgrimage taxable at 5%:

Air travel of pilgrims by non-scheduled/charter operations, for religious pilgrimage facilitated by the Government of India under bilateral arrangements shall now attract the same rate of GST as applicable to similar flights in Economy class i.e. taxable at 5% where ITC of input services will only be allowed.

Earlier, the said service was being levied to tax under the residual category at the rate of 18%. Hence to bring it in line with other passenger air transportation service this amendment has been given effect to. However, it is to be noted that ITC of goods used in supplying the said service will not be available.

The organisations specified shall mean:

  • Kumaon Mandal Vikas Nigam Limited, a Government of Uttarakhand Undertaking;
  • ‘Committee' or ‘State Committee' as defined in section 2 of the Haj Committee Act, 2002

8.2 Third Party insurance premium of 'goods carriage' taxable at 12%:

  1. GST rate on third party insurance premium of goods carrying vehicles reduced from 18% to 12%.
  2. Further 'goods carriage' has the same meaning as assigned to it in clause (14) of section 2 of the Motor Vehicles Act, 1988

8.3 Reduction in rate on tax on Cinema Tickets:

GST rate on cinema tickets above Rs. 100 is reduced from 28% to 18% and on cinema tickets up to Rs. 100, the GST rate is reduced from 18% to 12%.


Sr. No

Value of Ticket

New GST Rate

1

Rs. 100 or less

12%

2

More than Rs. 100

18%


8.4 GST on services in relation to solar power generating plant and other renewable energy plants:

A new entry has been inserted in serial number 38 to provide for the rate of tax on the supply of solar power generating plants and other renewable energy plants. Following is the effect of the amendment:

  • A contract is entered into involving the supply of goods as well as supply of services.
  • The supply of goods involved in the composite contract is in the nature of any of the following goods {covered in s. no. 234 of Notification 1/2017 - CT (R)}
    1. Bio-gas plant
    2. Solar power based devices
    3. Solar power generating system
    4. Wind mills, Wind Operated Electricity Generator (WOEG)
    5. Waste to energy plants / devices
    6. Ocean waves/tidal waves energy devices/plants
  • The supply of service involved in the contract is service by way of construction or engineering or installation or other technical services, provided in relation of setting up of above.
  • The value of goods portion shall be deemed to be 70% of the gross consideration charged for all such supplies {Notification no. 24/2018-CT(R)}. Applicable rate of tax would be 5%.
  • The value of service portion shall be deemed to be 30% of the gross consideration charges {Notification no. 24/2018-CT(R)}. Applicable rate of tax on such service portion would be 18%.

TEAM Comments: There were advance rulings which had provided that the composite supply of above project is liable to tax as works contract service at 18% rate of tax. There was corresponding entry in the rate schedule of goods making these goods liable to tax @ 5%. This was causing confusion in the entire industry and was increasing the costs of the project. The amendment is a welcome move to bring certainty in the taxability of such projects.

8.5 Supply of food by educational institutions taxable at 5% only when supply is made by a third party on contract basis:

Notification No. 11/2017-CT (R) had an explanation in serial number 7 which provided that the supply at a canteen, mess, cafeteria or dining space of a school or college when provided by such school or college was liable to tax @ 5%. Amendment has been made in the entry to omit the word 'school or college'. Circular No. 85/04/2019 - Central Tax clarifying the same has also been issued.

TEAM Comments: This amendment is only clarificatory in nature. It intends to clarify that GST continues to be exempt on supply of food and drinks by an educational institution when provided by the institution itself to its students, faculty and staff. However, the same will be leviable to tax at the rate of 5% when such services are provided by any other person based on a contractual arrangement with such institutions.

8.6 Scope of multimodal transport restricted from a place in India to another place in India:

12% rate of tax as applicable on multimodal transportation is applicable only for the domestic transportation not for the international transportation.

TEAM Comments: There was amendment in the rate notification whereby it was provided that the rate of tax in case of multimodal transportation of goods would be 12%. Also, there were entries in the exemption notification which had exempted the transportation services (air as well as ocean) when provided from India to a place outside India. This created a confusion in cases where a single contract was awarded for movement of goods from India to a place outside India as to whether such contracts would be entitled for the exemption or taxable @ 12% under multimodal transportation of goods entry. It has now been clarified that the 12% rate of tax in case of multimodal transportation would be applicable only when the goods are intended for movement from a place in India to another place in India, that is, only domestic multi-modal transport. International transportation would continue to remain exempted under the exemption notification.

8.7 Services by Asian Development Bank & International Finance Corporation

It is clarified that the services provided by IFC and ADB are exempt from GST in terms of provisions of IFC Act, 1958 and ADB Act, 1996. Further, it has been clarified that the exemption will be available only to the services provided by ADB and IFC and not to any entity appointed by or working on behalf of ADB or IFC

8.8 Exemption on services provided by GTA to Government Departments:

Services provided by GTA to Government departments, local authorities, or Governmental Agencies which have taken registration under GST only for the purpose of deducting tax under Section 51, shall be excluded from payment of tax under RCM and the same shall be exempted.

TEAM Comments: As such government agencies obtain registration only for the purpose of deducting TDS under provisions of section 51. It has been ensured that they are not made liable under reverse charge for the services provided by GTA. Similarly, the GTA has also been exempted for the services provided to such agencies.

8.9 New exemption on services provided by banks to BSBD account holders:

Services supplied by banking company to Basic Saving Bank Deposit (BSBD) account holders under Pradhan Mantri Jan Dhan Yojana (PMJDY) shall now be exempted from GST.

8.10 Guarantee services provided by CG/SG to their PSU's on loans taken from banks now exempt from tax:

Earlier exemption was available in respect of services provided by the Central or State Government or Union Territory Government to their undertakings or PSUs by way of guaranteeing loans taken by them from financial institutions. The said exemption is now being extended to guaranteeing of such loans taken from banks as well.

8.11 Exemption provided to services supplied by rehabilitation professionals:

Services provided by rehabilitation professionals recognised under the Rehabilitation Council of India Act, 1992 by way of rehabilitation, therapy or counselling and such other activity as covered by the said Act, at medical establishments, educational institutions, rehabilitation centers established by CG, SG or UT or an entity registered under section 12AA of the Income Tax Act, 1961, will now be exempted from GST .

8.12 Exemption entry relating to IIMs removed as being redundant w.e.f. 31.01.2018:

With the enactment of the IIM Act, 2017 from 31.01.2018, the degrees/diploma awarded by the IIMs would be exempt by way of the exemption entry No. 66 as IIM would qualify as an ‘educational institution'. Further, there were contradictory advance rulings in this aspect due to the existence of the entry No. 67. Removal of the said entry will rest the dispute. However, short term courses (of a period of less than 1 year) which are not a qualification recognised by law remains to be taxable. Circular No. 82/01/2019 - Central Tax has been issued clarifying the above mentioned treatment.

8.13 Leasing or renting of goods to attract same rate of tax as that of the said goods

An entry has been inserted under HSN 9973 to include the ‘Leasing or renting of goods' which would be liable @ applicable on supply of like goods involving transfer of title in goods.

TEAM Comments: Prior to insertion of this entry, the transactions of renting or leasing of goods other than aircrafts and motor vehicles and vessels under time charter, were covered only under the residual rate entry under HSN 9973 and liable @ 18% instead of the rate as applicable to the said good. This entry would ensure that, whether the sale or lease of any goods would be liable at the same rate.

H. CLARIFICATIONS ISSUED

9.1 Carry forward Cenvat Credit with respect Service Tax on input services (circular no. 87)

  1. The Government vide Circular No. 87/2018-CGST has clarified an apparent anomaly affected by CGST Amendment Act, 2018 wherein it was being perceived in the trade and industry that ITC of carry forward Cenvat Credit with respect Service Tax on input services is supposedly curtailed under Section 140 (1) of CGST Act. The Circular clarifies that, it was never the intention of the government to curtail ITC with respect to Service Tax on input services.
  2. Prevailing Anomaly - The pertinent anomaly was the result of interpretation of Section 28 (b) (i) and 28 (c) (ii) of the CGST Amendment Act, 2018 which had purported to link the ITC entitlement under Section 140 (1) ibid to the literal meaning of 'eligible duties' and 'eligible duties and taxes' under Explanation 1 and 2 respectively to Section 140 ibid. Since explanations defined eligible duties with respect to stock and in-transit credits only, thus there was doubt amongst trade that since Cenvat Credit of Service Tax was neither with respect to stock in trade nor with respect to in-transit credits. Accordingly it was perceived that credit of service tax might become ineligible owing to such amendment.
  3. Not notifying Section 28 (b) (i) and 28 (c) (ii) - The government in a bid to remove the ambiguity has decided to not notify provisions of Section 28 (b) (i) and 28 (c) (i) ibid, to delink Section 140 with explanations as above. However the government has also affirmed its stand that credit of various cess (SBC, KKC, EC, SHEC) is not allowed to be carry forward under GST.

9.2 Supply of used/ old goods and scrap by the government departments*: (circular no. 76)

Clarification was sought regarding the taxability of supply of used vehicles, seized and confiscated goods, old and used goods, waste and scrap by Government departments. (Central Government, State Government, Union territory, or a local authority)

It has been clarified that:

  1. Taxability: Such supply constitutes a 'taxable supply' under GST and hence GST is required to be paid on such supply.
  2. Person responsible: It depends upon the status of the ‘recipient'
    1. Recipient is registered: Then the responsibility to pay tax has been casted over the ‘recipient' under reverse charge basis vide notification no. 36/2017-CentralTax (Rate) and notification No. 37/2017- Integrated Tax (Rate) both dated 13.10.2017.
    2. Recipient is unregistered: Such cases are not covered under the ‘reverse charge' notifications and hence the respective departments shall be liable to get registered and pay GST on such supplies.

TEAM Comment: It is a welcome clarification as applicability of reverse charge on such supplies made to unregistered person could have caused genuine hardship to large number of assessees, thus the new clarification provides for registration of the government departments in case the used vehicles, seized and confiscated goods, old and used goods, waste and scrap, are supplied to unregistered person.

However, this registration would be subject to the provisions contained in section 22 and section 24 of the CGST Act, 2017.

9.3 Late filing of GSTR 3B- Not to invoke penalty under Section 73(11): (circular no. 76)

  1. Provisions of section 73(11) of the CGST Act, provides that penalty is payable in case self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax. (10% of tax amount or Rs. 10,000/- whichever is higher)
  2. The clarification was sought whether penalty in accordance with section 73 (11) of the CGST Act should be levied in cases where the return in FORM GSTR-3B has been filed after the due date of filing such return.
  3. It has been clarified that:
    1. The provisions of section 73(11) of the CGST Act can be invoked only when the provisions of section 73(1) are invoked.
    2. To invoke provisions of section 73(1), show cause notice (SCN) is required to be issued by the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised for any reason under the provisions of section 73(1) of the CGST Act.
    3. As, in case of delayed filing of the return in FORM GSTR-3B, tax along with applicable interest has already been paid suo motto by the registerd person, the provisions of section 73 of the CGST Act are generally not invoked in this case. Hence, the penalty provided in the section 73 (11) is not applicable.
    4. It is further clarified that since the tax has been paid late in contravention of the provisions of the CGST Act, a general penalty under section 125 of the CGST Act may be imposed after following the due process of law.

TEAM Comment: There was lack of clarity as to the scope of this entry i.e. whether penalty has to be paid voluntarily or consequent to the proceedings initiated by the department. The clarification provided has removed the doubt and would certainly lead to drop in the scope of litigation.

9.4 Rate of tax applicable on the revision of prices of any supply on or after the appointed day (circular no. 76)

  1. Section 142(2) of the CGST Act, 2017 provides that a supplementary invoice or debit/credit note may be issued in case of revision of prices on or after the appointed day (i.e., 01.07.2017), of any goods or services or both which were supplied before the appointed day (i.e., 01.07.2017). Such supplementary invoice or debit/credit note which shall be deemed to have been issued in respect of an outward supply made under the CGST Act.
  2. Clarification was sought regarding the rate at which the tax should be paid i.e. whether the tax is to be paid as were prevailing in the erst-while regime or as per rate of tax applicable in GST regime?
  3. It has been clarified that the rate of tax as prevailing in the GST regime would be applicable on such revision of prices. (i.e. services provided in pre GST period where rate of tax incl applicable cess was 15%. Post GST, presuming that the rate of tax on such service is 12%, the credit note/debit note would be raised @ 12% not @ 15%.)

TEAM Comment: The clarification issued is very late as many of the contracts pertaining to pre GST regime have already been given effect to by issuing credit note/debit note. In cases where the supplier have issued wrong credit note/debit note (say service tax in above cases), they may have to modify the earlier credit note/debit note and issue revised credit note/debit note in accordance with the above clarification.

9.5 Applicability of the provisions of Section 51 of the CGST Act, 2017 i.e. TDS (circular no. 76)

The department has issued notification No. 50/2018- Central Tax dated 13.09.2018 regarding the applicability of the provisions of the TDS, which provides the applicability of the provisions on the following classes of recipient:

(a) an authority or a board or any other body, -

(i) set up by an Act of Parliament or a State Legislature; or
(ii) established by any Government,

with fifty-one per cent. or more participation by way of equity or control, to carry out any function;

  • Clarification was sought as to whether requirement of fifty one percent of participation by way of equity or control is applicable to both the clauses or only second clause.
  • It has been clarified that the long of long line mentioned in clause (a) of the notification is applicable to both item (i) and (ii).
  • Thus and only those authority or a board or any other body set up by an Act of parliament or a State legislature or established by any Government in which fifty one per cent or more participation by way of equity or control is with the Government, are required to deduct tax at source in accordance with Section 51 of the CGST Act, 2017.

TEAM Comment: There were conflicting judgments of the Patn High Court and Kerala High Court as to applicability of the shareholding requirement on both the clauses. The clarification issued under circular would remove ambiguity as to the entities which would get covered in the requirement to deduct TDS and accordingly there would be clarity as to the scope of liability for TDS deduction.

9.6 Valuation- Where the tax is required to be collected at source (TCS) under Income Tax Law: (circular no. 76)

  1. Clarification has been sought whether the TCS amount collected under the provisions of the Income Tax Act, is to be included in the value of supply or not.
  2. It has been clarified that since the value of supply as per section 15 includes any tax (other than GST) if charged separately by the supplier, the taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act.

TEAM Comment: The clarification has reiterated the inclusive portion of the section 15 by providing that the TCS payable under the Income Tax Act would be includibe in the scope of valuation. However, this would raise a question as to whether any tax etc. payable under any law could be considered as consideration for the supply and includible in the value of supply.

9.7 Who will be considered as the 'owner of the goods' for the purposes of section 129(1) of the CGST Act? (circular no. 76)

  • As per section 129, where the any person transports or stores any goods while they are in transit in contravention of the provisions of GST law, then all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure.
  • These goods and conveyance can be released only after payment of applicable tax and penalty by the 'Owner of the goods 'or the 'person-in charge' of the conveyance.
  • The clarification is sought as to who will be considered as the 'owner of the goods' for the purposes of section 129(1) of the CGST Act?
  • It has been clarified that:
    • if the invoice is accompanying the consignment of goods: either the consignor or the consignee should be deemed to be the owner
    • If the invoice or any other specified document is not accompanying the consignment of goods: the proper officer should determine who should be declared as the owner of the goods.

9.8 Export of Services- (circular no. 77)

  1. Under GST, the supply of services can be said to be in the course of ‘export' only when all the following conditions are satisfied:
    • Location of supplier- In India
    • Location of Recipient- Outside India
    • Place of supply- Outside India
    • Payment- Received in ‘Convertible foreign Exchange'
    • Exporter and importer are not merely the establishments of same person.
  2. In case all the above conditions are satisfied, the benefit of zero-rating is available.
  3. However, there may be instances, where an exporter of services outsources a portion of the services contract to another person located outside India
  4. Clarification is sought regarding the tax treatment of the outsourced portion of the contract at the hands of the exporter, say if the contract for export of services is USD 100000 and 40% of the contract has been outsourced to a person located outside India, then either USD 100,000 will be regarded as the ‘export of service' or it will be restricted to USD 60,000?

It has been clarified that:

There are 2 supplies involved:

  1. Export of services from the supplier in India to the recipient of services located outside India.- Benefit of zero-rating is available on full contractual value of USD 100000.
  2. Import of services from the supplier of services located outside India with respect to the outsourced portion of the contract- Tax is required to be paid on reverse charge basis on the 40% contract value which has been outsourced and the input tax credit can be availed on the same.

Clarification was also sought as to what will happen where the supplier of services located outside India to whom the portion of contract has been outsourced is being paid directly outside India, by the recipient of services and only the balance portion of the consideration has been in convertible foreign exchange in India.

It has been clarified that the portion of consideration paid directly to the supplier of services located outside India to whom the portion of contract has been outsourced can be regarded as the receipt of consideration for export of services, provided:

  1. Such payment would be regarded as amount paid towards import of services and IGST is required to be paid on reverse charge basis, and
  2. There is a general instruction or specific approval by RBI, allowing that a part of the consideration for such exports can be retained outside India.

TEAM Comment: The netting of transactions have been clarified to be covered within export of service ambit. However, the condition that the consideration paid to foreign service provider in outsourced service model should be liable to tax under RCM may not always be correct especially of the place of supply of service is outside India. The benefit of export of services should be allowed in such cases also so long as there is general or specific approval by RBI allowing retention of consideration for such services outside India.

9.9 Inter-state movement of machinery like tower cranes, rigs, batching plants, concrete pumps and mixers-:

  1. It is a general practice of companies in Infrastructure business to make inter-state movement of machinery like tower cranes, rigs, batching plants, concrete pumps and mixers which are not mounted on wheels so as to make provision of services. No title in such goods is being transferred to the recipient.
  2. Clarification was sought, whether such inter-state movement of goods would constitute as ‘supply' and whether GST would be payable on such supply?
  3. It has been clarified that:
    • Such inter-state movement of goods for provision of service on own account doesn't constitute as 'supply of goods'
    • And hence NO GST is payable.
  4. However, it may be noted that, where such movement of goods takes place for
    • Making further supply of such goods,. Or
    • By way of stock transfer,

Then it will qualify as 'supply of goods' and hence GST would be required to be paid on the same.

9.10 GST on Services by Business Facilitator (BF) / Business Correspondent (BC) to a Banking Company- (circular no. 86)

Issue 1: Determining the supplier of services in the business facilitator model or the business correspondent model

  • As per relevant RBI guidelines, BF/BC are specifically prohibited from charging any fees to customers for services rendered by them on behalf of bank. The banks are allowed to charge a reasonable fee from the customers for the services provided by BF/BC. Further, such transactions are recorded / accounted for in the books of accounts of Banks.
  • Hence, banking company is the service provider in the business facilitator model or the business correspondent model operated by a banking company as per RBI guidelines. The banking company is liable to pay GST on the entire value of service charge or fee charged to customers whether or not received via business facilitator or the business correspondent.

Issue 2: Clarification on the scope of services by BF/BC to a banking company with respect to accounts in rural areas

  • Exemption has been given to services by banking companies in Rural Areas.
  • The procedure for classification of branch of a bank as located in rural area and the services which can be provided by BF/BC, is governed by the RBI guidelines.
  • It is clarified that for the purpose of availing exemption from GST under Sl. No. 39 of said notification, classification adopted by the bank in terms of RBI guidelines in this regard should be accepted.

J. CHANGES IN RATES OF SUPPLY OF GOODS

10.1 Changes in GST rates - Goods (Notification No 24/2018 & 25/2018 - Central Tax (Rate))

Firstly, the Notification No.24/2018-Central Tax (Rate) has amended the original rate notification for goods to include reference to Section 15(5) of the CGST Act,2017, which provides for determination of value of supplies for specific transactions.

Summary of rate changes and exemptions is provided in the table below (rate changes are captured only once in the table for a particular product and not reported twice due to changes among the rate Schedules)


Sl.No.

HSN

Goods

Remarks

Amendments in Schedule I - 5%

23

0710

Vegetables (uncooked or cooked by steaming or boiling in water), frozen

Earlier subjected to GST @ 5%. Now deleted and covered under exemption notification (Sl.No.43A of exemption notification)

24

0711

Vegetables provisionally preserved (for example, by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption

Earlier subjected to GST @ 5%. Now deleted and covered under exemption notification. (Sl.No.43B of exemption notification)

123A

2515 11 00

Marble and travertine, crude or roughly trimmed

New entry inserted. Earlier rate was 185 which has been reduced to 5%.

198A

4501

Natural cork, raw or simply prepared

Earlier entry No.198A has been renumbered to 198AA. GST rate reduced from 12% to 5% and inserted as S.No.198A

225

64

Footwear of sale value not exceeding Rs.1000 per pair

The earlier entry read as ‘Footwear having a retail sale price not exceeding Rs.500 per pair, provided that such retail sale price is indelibly marked or embossed on the footwear itself.' Now the rate of tax has been linked with the transaction value at each chain of supply instead of linked with the retail sale price.

225A

6602 00 00

Walking-sticks including seat sticks

GST rate reduced from 12% to 5%. Existing Sl.no.225A has been renumbered as 225B and the said entry has been included.

225B

6815

Fly ash bricks or fly ash aggregate with 90 per cent. or more fly ash content; Fly ash blocks';

Entry renumbered and the words ‘Fly ash blocks' has been inserted. Earlier, Fly Ash Blocks were subjected to GST @ 12%, now reduced to 5%.

234

84, 85 or 94

Insertion of Explanation

'If the goods specified in this entry are supplied, by a supplier, along with supplies of other goods and services, one of which being a taxable service specified in the entry at S. No. 38 of the Table mentioned in the notification No. 11/2017-Central Tax (Rate), dated 28th June, 2017 [G.S.R. 690(E)], the value of supply of goods for the purposes of this entry shall be deemed as seventy per cent. of the gross consideration charged for all such supplies, and the remaining thirty per cent. of the gross consideration charged shall be deemed as value of the said taxable service.'

The explanation provides for a deemed valuation mechanism in case where the supply includes provision of services in case of solar projects. Separate detailed discussion has been made on this in the services rate notification discussion.

243A

8714 20

Parts and accessories of carriage for disabled persons

Sl.No.234 covered only Carriages and did not include parts & accessories. GST rate reduced from 28% to 5%.

Existing entry of 243A renumbered to 243B and the said entry has been included.

Amendments in Schedule II - 12%

101A

4502 00 00

Natural cork, debacked or roughly squared, or in rectangular (including square) blocks, plates, sheets or strip (including sharp-edged blanks for corks or stoppers)

GST rate reduced from 18% to 12%

101B

4503

Articles of natural cork such as Corks and Stoppers, Shuttlecock cork bottom

GST rate reduced from 18% to 12%

101C

4504

Agglomerated cork (with or without a binding substance) and articles of agglomerated cork

GST rate reduced from 18% to 12%

126

4904 00 00

Music, printed or in manuscript, whether or not bound or illustrated

Earlier subjected to GST @ 12%. Now deleted and covered under exemption notification (Sl.No.121A of exemption notification)

171A

6305 32 00

Flexible intermediate bulk containers

Existing Sl.no.171A has been renumbered as 171AA and the said entry has been included

Amendments in Schedule III - 18%

121A

4012

Retreaded or used pneumatic tyres of rubber; solid or cushion tyres, tyre treads and tyre flaps, of rubber

GST rate reduced from 28% to 18%. Existing Sl.no.121A has been renumbered as 121B and the said entry has been included.

369A

8483

Transmission shafts (including cam shafts and crank shafts) and cranks; bearing housings and plain shaft bearings; gears and gearing; ball or roller screws; gear boxes and other speed changers, including torque converters; flywheels and pulleys, including pulley blocks; clutches and shaft couplings (including universal joints)

Earlier entry read as

Crank shaft for sewing machine, bearing

housings; plain shaft bearings; gears and gearing; ball or roller screws

376AAA

8507

Lithium-ion accumulators (other than battery) including lithium-ion power bank

GST rate reduced from 28% to 18%.

383

8525

Closed-circuit television (CCTV), transmission apparatus for radio-broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus; television cameras, digital cameras and video camera recorders [other than two-way radio (Walkie talkie) used by defence, police and paramilitary forces etc]

The words ‘digital cameras and video camera recorders' has been inserted. Earlier, digital cameras and video camera recorders were subjected to GST at 28%

383C

8528

Television set (including LCD or LED television) of screen size not exceeding 32 inches

Earlier the rate entry covered television not exceeding 68 cm.

384

8528

Computer monitors not exceeding 32 inches, Set top Box for Television (TV)

Earlier the rate entry covered monitors not exceeding 20 inches.

440A

9504

Video game consoles and machines, articles of funfair, table or parlour games, including pintables, billiards, special tables for casino games and automatic bowling alley equipment [other than playing cards, ganjifa card, chess board, carom board and other board games of 9504 90 90 like ludo, etc.]

GST rate reduced from 28% to 18%. Existing Sl.no.440A has been renumbered as 440B and the said entry has been included.

Amendments in Schedule IV - 28%

Amendments in Schedule IV has been made in accordance with the rate changes made in Schedule I & III above.

Amendments to Exemption Notification (In addition to the above entries)

153

Any Chapter

Supply of gift items received by the President, Prime Minister, Governor or Chief Minister of any State or Union territory, or any public servant, by way of public auction by the Government, where auction proceeds are to be used for public or charitable cause'.

 
           

TEAM Comments: Above amendments in the rate of various products have been undertaken by the Government in their exercise of rate of tax falling under various tax brackets. It has been a welcome move by the Government whereby they have been gradually reducing the items covered in the rate schedule of 28%. Wherever there is change in the rate of tax resulting in reduction in rate, there would be implications on the supplier to comply with the anti-profiteering requirements.

10.2 Exemption for intra-State supply of gold when supplied by Nominated Agency under the scheme for "Export Against Supply by Nominated Agency (Notification No 26/2018 - Central Tax (Rate))

The Notification provides for exemption to intra-State supply of gold when supplied by Nominated Agency under the scheme for "Export Against Supply by Nominated Agency (as referred to in paragraph 4.41 of the Foreign Trade Policy, read with relevant provisions of Chapter 4 of Handbook of Procedures), to a registered person (‘recipient'), subject to the following condition -

  1. the Nominated Agency and the recipient shall follow the conditions and observe the procedures as specified in the Foreign Trade Policy read with Handbook of Procedures;
  2. the recipient shall export the jewellery made out of such gold within a period of 90 (ninety) days from the date of supply of gold to such recipient and shall provide copy of shipping bill or bill of export containing details of Goods and Services Tax Identification Number (GSTIN) alongwith the invoice for exports to the Nominated Agency within a period of 120 (one hundred and twenty) days from the date of supply by the Nominated Agency;
  3. wherever such proof of export is not produced within the period mentioned in condition (ii), the Nominated Agency shall pay the amount of central tax payable on the quantity of gold not exported, along with interest from the date when the said tax on such supply was payable, but for the exemption.

K. CLARIFICATION REGARDING GST RATES AND CLASSIFICATION (GOODS)


S No.

Particulars

Clarification

1

Chhatua or Sattu (Mixture of flour of ground pulses and cereals) (Circular No. 80)

HSN - 1106

Rates applicable:

  • If supplied unbranded - Nil rate of tax (exempt supply)
  • If supplied branded - 5%

2

Fish meal and other raw materials used for making cattle/poultry/aquatic feed (Circular No. 80)

  • Items classified under HSN 2301 are taxable at the following rates:
    • Nil rate - 'Aquatic feed including shrimp feed and prawn feed, poultry feed & cattle feed, including grass….'
    • 5% - 'Flours, meals and pellets, of meat or meat offal, of fish or of crustaceans, molluscs or other aquatic invertebrates, unfit for human consumption; greaves'
  • Since, raw materials/inputs such as fish meal or other materials cannot be directly used for feeding animal and cattle; and also that inputs for animal feed is different from the animal feed as decided in the case of Mumbai vs. Dilip Kumar [2018 (361) E.L.T 577] by Supreme Court, the rate of tax applicable on such inputs shall be 5%.

3

Animal feed supplements/ feed additives from drugs (Circular No. 80)

  • Dispute in classification of Animal feed supplements/feed additives from drugs between tariff heading 2306 and 2936.
  • Heading 2309, interalia, reads as:

'vitamins and provitamins which improve digestion and, more generally, ensure that the animal makes good use of the feeds and safeguard its health'

  • While heading 2936 covers:

'vitamins and provitamins which are medicinal in nature and have much higher concentration of active substance'

  • It has been clarified that for the purpose of classifying a product as animal food supplements, it is necessary that the said animal feed supplements are ordinarily or commonly known to the trade as products for a specific use in animal feeding.
  • Thus, it may be concluded that if the product is capable of:
    • Specific use - to be classified under HSN 2309
    • General use - to be classified under HSN 2936

4

Liquefied Petroleum Gas for domestic use (Circular No. 80)

  • Industry contends the view that supply of LPG for domestic use by refiners/ fractionators like GAIL and ONGC to Oil Marketing companies does not fall within the meaning of the term 'domestic use' and hence not to be taxed at 5%.
  • It has been clarified that the view taken by the industry is wrong as the LPG stream for domestic LPG is differently priced and packed differently from commercial LPG and thus the same is identified at initial level only and hence should be taxable at 5% when supplied by refiners to OMCs or from one OMC to other for bottling purposes.

5

Polypropylene Woven and Non-Woven Bags and PP Woven and Non-Woven Bags laminated with BOPP (Circular No. 80)

It has been clarified that the product shall be classified as 'Plastic bags' under HSN code 3923 and the rate of tax applicable on the same shall be 18%.

6

Wood logs for pulping (Circular No. 80)

It has been clarified that wood logs supplied for pulping shall be classified under HSN code 4403 and the same shall be taxable at 18%.

7

Bagasse based laminated particle board (Circular No. 80)

  • Clarification was sought whether concessional rate of 12% applicable on Bagasse board is also applicable on Bagasse based laminated particle board.
  • It has been clarified that Bagasse board (whether plain or laminated) falling under chapter 44 shall be taxable at 12%.

8

Embroidered fabric sold in three pieces cloth for lady suits (Circular No. 80)

It has been clarified that fabrics sold in three pieces cloth does not constitute to be readymade garments, but are fabrics which have been packed into pieces of different lengths, whether or not such fabrics are embroidered or embellished and hence taxable @5% only.

9

Waste to Energy Plant-scope of entry No. 234 of Schedule I of notification No.1/2017- Central Tax (Rate) dated 28.6.2017 (Circular No. 80)

For determining whether the goods used in the setting up of Waste to Energy plants (WTEP), the following two conditions need to be fulfilled:

  1. The goods purchased fall under chapter 84, 85 and 94
  2. These goods are used in the initial setting up of renewable energy plants and devices including WTEP.

Thus, goods falling under any other chapter shall not be covered by the said entry. Moreover, it has been further clarified that it is the responsibility of the assesse to determine the classification of goods purchased, i.e. whether the said goods fall within chapter 84, 85 and 94.

10

Turbo charger for railways (Circular No. 80)

It has been clarified that Turbo chargers irrespective of its user shall be classified under HSN 8414 and be taxable at 18% and not to be covered under chapter 86.

11

GST tax rate for sprinkler and drip irrigation system including laterals - reg. (Circular No. 81)

  • Clarification was sought whether 'laterals for sprinklers' is covered under HSN 8424 and thus taxable @ 12% or not.
  • Description of HSN 8424 reads as:

'Sprinklers; drip irrigation system including laterals;'

From above, it may be inferred that laterals of drip irrigation is included, however, lateral of sprinklers is not included under this HSN.

  • It has been clarified that the term sprinklers covers sprinkler irrigation system and thus, nozzles, lateral and other components would be covered under HSN 8424 and taxable at 12%.

12

Printing Photographs (Circular No. 84)

  • According to the explanatory notes to the scheme of classification, entry 998386 includes, inter alia, "color printing of images from film or digital media", and the same has been specifically excluded from the entry 998912.
  • It has been clarified in the circular that the services of printing pictures are covered under HSN 998386 and attracts 18% rate of tax.

L. PLACE OF SUPPLY OF SERVICES WHEN SUCH SUPPLIES ARE MADE IN MORE THAN ONE STATE

(IGST Notification No. 4/2018)

12.1 Place of supply of services as given under Section 12(3) of the IGST Act (in relation to an immovable property), where the supply of services is attributable to different States

Rule 4 of IGST Rules, 2017 has been inserted to provide the place of supply of services as mentioned in clause (a) to (d) of Section 12(3) of the IGST Act, where -

  • such services are attributable to different States, and
  • where the contract / agreement between the supplier of services and recipient of services does not specify the allocation of value for each State, the same shall be done as follows -

Nature of Supply of Service

Place of supply

Example

Services (including ancillary services), provided by way of lodging accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, except cases where such property is a single property located in two or more contiguous States or Union territories or both.

Each of the respective State where such service is provided, in proportion of number of nights stayed.

Hotel chain X charges a consolidated sum of Rs.30,000/- for stay in its two establishments in Delhi (for 2 nights) and Agra (for 1 night).

The place of supply shall be both Delhi and Uttar Pradesh. Allocation would be made in the ratio of 2:1. The value of supply of services for provided will thus be apportioned as Rs.20,000/- in Delhi and Rs.10,000/- in the Uttar Pradesh.

All other services in relation to immovable property: (few illustrative services as below though it would cover all services specified in section 12 (3) of IGST Act):

  • architect, engineers, surveyors etc.
  • lodging accommodation service for organization of marriage function etc. where such property is a single property located in two or more contiguous States or Union territories (incl. ancillary services)

Each of the respective States or Union territories, in proportion to the area of the immovable property lying in each State or Union territory;

A marriage hall of 10000 sq ft is partly in the State of Rajasthan (7000 sq ft) and partly in the State of Haryana (3000 sq ft). It is rented for, say, Rs 5,00,000.

The place of supply for services shall be both, i.e. the State of Rajasthan and the State of Haryana, and the services shall be deemed to be provided proportionately in the ratio of 7:3 in Rajasthan (Rs 3,50,000) and Haryana (Rs 1,50,000).

in case of services provided by way of lodging accommodation by a house boat or any other vessel and services ancillary to such services,

Each of the respective States or Union territories, in proportion to the time spent by the boat or vessel in such State rf Union Territory. Note - Such time shall be determined on the basis of declaration made to the effect by the supplier.

A company C provides the service of 24 hours accommodation in a houseboat, which is situated both in Kerala and Karnataka inasmuch as the guests board the house boat in Kerala and stay there for 22 hours but it also moves into Karnataka for 2 hours (as declared by the service provider).

The place of supply of this service is in the States of Kerala and Karnataka. The service shall be deemed to have been provided in the ratio of 22:2 in the States of Kerala and Karnataka respectively.


Note - the above provisions would, mutatis mutandis, applicable where either the location of supplier of services or location of recipient of services is outside India (Rule 8 of the IGST Rules, 2017, as inserted in the said notification) but the property is located in more than one State in India

TEAM Comments - Though the section had provided that in case immovable property related services provided in more than one State where contract does not provide for segregation of consideration between various States, it would be determined in the manner as prescribed. However, no such mechanism was prescribed till date. Above Rule would require to be followed for determination of place of supply in each of the States where contract does not provide for determination of consideration attributable to each State separately.

12.2 Place of supply of services as given under section 12(7) of the IGST Act, where the supply of services is attributable to different States (event related services)

Rule 5 of IGST Rules, 2017 has been inserted to provide the place of supply of services provided by way of organization of a cultural, artistic, sporting, scientific, educational or entertainment event, including supply of services in relation to a conference, fair exhibition, celebration or similar events or services ancillary to such services, where -

  • The services are provided to a person other than registered person,
  • the event is held in India in more than one State or Union territory,
  • a consolidated amount is charged for supply of such services, and
  • there is no clause in the contract or agreement between the supplier of service and recipient of services for separately collecting or determining the value of the services in each such State or Union territory,

The Place of supply shall be determined by application of the generally accepted accounting principles.

Note - the above provisions would, mutatis mutandis, applicable where either the location of supplier of services or location of recipient of services is outside India (Rule 9 of the IGST Rules, 2017, as inserted in the said notification) but the property is located in more than on State in India

Illustration: An event management company E has to organize some promotional events in States S1 and S2 for a recipient R. 3 events are to be organized in S1 and 2 in S2. They charge a consolidated amount of Rs.10,00,000 from R. The place of supply of this service is in both the States S1 and S2. Say the proportion arrived at by the application of generally accepted accounting principles is 3:2. The service shall be deemed to have been provided in the ratio 3:2 in S1 and S2 respectively. The value of services provided will thus be apportioned as Rs. 6,00,000/- in S1 and Rs. 4,00,000/- in S2.

TEAM Comments - The rule has left it open for the assessee to allocate the value to the respective States based on the application of generally accepted accounting principles. Though there may not be specific provisions in the GAAP to discuss with such nature of instances, one of the method which could be used may be to correlate the expenses incurred for providing such services in each of the States viz a viz revenue earned (also giving effect to the gross profit earned) so that there is matching of expenses with the income or based on the number of attendees in the event. It is suggested to have proper documentary evidence to maintain necessary records to establish the basis based on which such State-wise segregation has been arrived at.

12.3 Place of supply of services as given under Section 13(7) of the IGST Act (performance based services)

Rule 7 of IGST Rules, 2017 has been inserted to provide the place of supply of services as mentioned in Section 13(7) where

  • the location of the supplier of services or the location of the recipient of services is outside India, and
  • the nature of service is such where recipient of supply is required to make the goods available to the supplier of service for the purpose of making supply of services (performance based services) and,
  • where such services are supplied in more than one State or Union territory,

shall be determined in the following manner, namely:-

  1. If there is contract between parties to determine the value attributable to each States, the value shall be determined in accordance with such contract.
  2. In the absence of contract between parties:
    • in the case of services supplied on the same goods, by equally dividing the value of the service in each of the States and Union territories where the service is performed;
    • in the case of services supplied on different goods, by taking the ratio of the invoice value of goods in each of the States and Union territories, on which service is performed, as the ratio of the value of the service performed in each State or Union territory;
    • in the case of services supplied to individuals, by applying the generally accepted accounting principles.

Illustration-1: A company C which is located in Kolkata is providing the services of testing of a dredging machine and the testing service on the machine is carried out in Orissa and Andhra Pradesh. The place of supply is in Orissa and Andhra Pradesh and the value of the service in Orissa and Andhra Pradesh will be ascertained by dividing the value of the service equally between these two States.

Illustration-2: A company C which is located in Delhi is providing the service of servicing of two cars belonging to Mr. X. One car is of manufacturer J and is located in Delhi and is serviced by its Delhi workshop. The other car is of manufacturer A and is located in Gurugram and is serviced by its Gurugram workshop . The value of service attributable to the Union Territory of Delhi and the State of Haryana respectively shall be calculated by applying the ratio of the invoice value of car J and the invoice value of car A, to the total value of the service.

Illustration-3: A makeup artist M has to provide make up services to an actor A. A is shooting some scenes in Mumbai and some scenes in Goa. M provides the makeup services in Mumbai and Goa. The services are provided in Maharashtra and Goa and the value of the service in Maharashtra and Goa will be ascertained by applying the generally accepted accounting principles.

TEAM Comments - Above provisions would be applicable only when either the supplier of service or recipient of service is outside India and the place of supply is in India and in more than one State. If both the supplier of services and recipient of services are located in India, the above rule would not be applicable and place of supply would be determined in accordance with the provision of section 12 of the IGST Act (which in most of the cases would be location of recipient of services).

The methodology prescribed could be very cumbersome for the service providers to apply as many times, the information may not be readily available with the service providers in order to determine the consideration attributable to each of the States in the manner as provided in the Rule above.

12.4 Place of supply of services relating to leased circuit, where services are attributable to different states (telecommunication services)

  • Rule 6 of IGST Rules, 2017 has been inserted to provide the place of supply of services as mentioned in Section 12(11) of the IGST Act.
  • The same is based upon a proportionate formula considering the number of circuits.

(a) The number of points in a circuit shall be determined in the following manner:

(i) in the case of a circuit between two points or places, the starting point or place of the circuit and the end point or place of the circuit will invariably constitute two points;

(ii) any intermediate point or place in the circuit will also constitute a point provided that the benefit of the leased circuit is also available at that intermediate point;

(b) The supply of services shall be treated as made in each of the respective States or Union territories, in proportion to the number of points lying in the State or Union territory

TEAM Comments - The rule shall have relevance in telecommunication sector where circuit points have been installed in more than one State. The place of supply would be determined in accordance with the circuit points falling within each of the States.

Disclaimer: This material and the information contained herein prepared by Team Hiregange intended for citizens of India and professionals in GST to provide updates under GST and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.

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Madhukar N Hiregange 
on 10 January 2019
Published in GST
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