On 7th March 2019, the Central Board of Indirect Taxes & Customs, issued three notifications bringing into effect the decisions taken by the GST Council in view of ease of doing business.
Let us analyse these notifications:
This notification is a landmark notification seeking to increase the threshold limit for GST Registration. Previously the threshold limit was Rs. 20 Lakhs rupees. Now, the same limit has been increased to Rs. 40 Lakhs. But let us look at the conditions attached to this exemption:
1. Persons required to take compulsory registration under section 24 of the said Act are not eligible to enjoy this benefit- the Act makes it compulsory for 12 categories of persons to obtain registration.
2. Persons engaged in making supplies of the goods, the description of which is specified in column (3) of the Table below and falling under the tariff item, sub-heading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said Table;- In other words one may term it as dealers dealing in Sin goods. The turnover limit shall continue to be Rs. 20 Lakhs for those dealers.
|Sl. No.||Tariff item, sub-heading, heading or Chapter||Description|
|1||2105 00 00||Ice cream and other edible ice, whether or not containing cocoa.|
|2||2106 90 20||Pan masala|
|3||24||All goods, i.e. Tobacco and manufactured tobacco substitutes|
3. Persons engaged in making intra-State supplies in following 10 States/ Union Territories shall not avail the increased exemption benefit:-
For the reasons best known to the Council and the Government, the registered persons of the above states are not eligible for the exemption relaxation.
4. Persons exercising option under the provisions of sub-section (3) of section 25, or such registered persons who intend to continue with their registration under the said Act.
The Act is very strict on those who have obtained registration u/s 25(3). A careful reading of the section leads us to a conclusion that Section 25(3) registration-i.e., Voluntary registration makes it difficult for the persons to reap the benefits of this exemption notification. In India, many persons take registration even when their turnover is less than Rs. 40 Lakhs (previously Rs. 20 Lakhs) due to lack of awareness and the remedy available is through an amendment made in GST Rule 20 vide. Notification No.3/2018 dated 23rd January 2018. The said amendment removed a condition to those who obtained Voluntary Registration that cancellation is not available unless one year has passed from the date of registration. Hence it was possible for those who have obtained registration voluntarily to cancel their registration. But lawmakers failed to make a similar change in Section 29 of the Act which deals with cancellation. Section 29 is very clear with respect to those who have taken registration voluntarily, where it says that cancellation is not available for Sec. 25(3) registered persons unless the said person has not commenced business within 6 months from the date of registration. In other words, there is no concept of Voluntary Cancellation, even if the turnover is less than Rs. 40 lakhs (Rs. 20 lakhs) threshold limit. Hence, the practice of cancellation of voluntarily registered persons may be in vogue, the same is not completely protected by law.
Reading between the lines
The amendment is brought by exercising the powers conferred in Section 23(2) – the power given to the Central Govt. to exempt specific category of persons from obtaining registration. In other words, the limit specified in Section 22 shall continue to be as Rs. 20 Lakhs only.
Further this exemption is not available for those whose are involved in providing services. Hence service providers shall continue to be liable for registration if their turnover exceeds Rs. 20 Lakhs.
The above notification is in addition to the previously issued notification seeking to exempt those who exclusively provide taxable supplies, total tax on which is liable to be paid on reverse charge basis. (Notification no.5/2017, dated 19.06.17).
The above two notifications aims to provide the due dates for furnishing GSTR-1– return on outward supplies for the period April – June 2019.
For persons having aggregate turnover of more than Rs. 1.5 Crore in the preceding financial year or the current financial year, the due date for each of the three months from April-June’19 shall be the 11th day of the month succeeding such month.
For persons having aggregate turnover up to Rs. 1.5 Crore in the preceding financial year or the current financial year, the due date for April-June’19 shall be 31st July’19. In other words a quarterly return has to be filed for the said period.
The Central Government specified that the due date for filing the return in FORM GSTR-3B for each of the months from April, 2019 to June, 2019 shall be 20th day of the month succeeding such month.
Further, the liability towards tax, interest, penalty, fees or any other amount payable under the said Act shall be discharged not later than the last date on which he is required to furnish the said return as specified above.
The Central Government increased the threshold limit for those taxpayers willing to pay tax under the composition scheme from Rs. 75 Lakhs to Rs. 1.5 Crore, thus bringing a greater number of Small scale tax payers into the “Ease of Doing Business” initiative. For taxpayers registered in the states mentioned below, the aggregate turnover limit shall be Rs. 75 Lakhs (previously Rs. 50 lakhs):
1. Arunachal Pradesh
Further, the taxpayers shall not have this option if he is a manufacturer of:
i) Ice cream and other edible ice, whether or not containing cocoa
ii) Pan masala
iii) All goods i.e., Tobacco and manufactured Tobacco substitutes.
Reading between the lines
The Service industry was expecting a Composition scheme for service providers, however I was left amazed at the way the Composition scheme was brought into effect by way of separate Rate notification rather than an all-encompassing Composition notification.
I still am not able to fathom the restrictions placed in Section 10(1) of the CGST Act w.r.t service providers where the value of services has been capped to 10% of the turnover or five lakhs whichever is higher. In other words, to directly fall under the composition rules as a service provider, I compulsorily would have to provide goods for me to avail the benefit of composition rates.
I still feel that the Govt. has complicated the law while attempting to bring out a composition scheme for service providers. I shall explain the same in the section coming below
The above notification will be applicable from 1st April 2019.
Notification No. 8/2017 dated 27th June 2017 was the earlier notification listing out the scheme for taxpayers intending to avail the composition benefit. The same stands rescinded and the above notification supersedes the same.
The above notification aims to provide composition scheme to the service suppliers.
Let us try to understand the nuances of the above notification-
1. Eligibility- For registered persons whose first supplies of Goods or services or both does not exceed Rs. 50 Lakhs which are made on or after 1st April 2019. Please bear in mind the new registration requirements increases the threshold limit from Rs. 20 Lakhs to Rs. 40 Lakhs. Hence, after having crossed Rs. 40 Lakhs, a person would be required to obtain registration. However, he is required to pay tax only for the amount of turnover made in excess of Rs. 40 lakhs (Tax on turnover between Rs.40-50 lakhs). This is provided by way of an explanation to the notification. This is applicable for only the newly registered taxpayers who wish to avail this benefit.
2. Supplies are made by a registered person, –
(i) whose aggregate turnover in the preceding financial year was Rs. 50 lakh or below;
(ii) who is not eligible to pay tax under sub-section (1) of section 10;
(iii) who is not engaged in making any supply which is not leviable to tax;
(iv) who is not engaged in making any inter-State outward supply;
(v) who is neither a casual taxable person nor a non-resident taxable person;
(vi) who is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52; and
(vii) who is not engaged in making supplies of:
i. Ice cream and other edible ice, whether or not containing cocoa.
ii. Pan masala
iii. Tobacco and manufactured tobacco substitutes
The above conditions are very much similar to the composition rules, but with certain additional conditions.
3. Where more than one registered persons are having same PAN, central tax on supplies by all such registered persons is paid at the given rate.(In the case of multiple registrations within the state/or outside the state not engaged in Interstate supplies, all the units should fall under this scheme.)
4. The registered person shall not collect any tax from the recipient nor shall he be entitled to any credit of input tax.-Similar to the composition rules.
5. The registered person shall issue, instead of tax invoice, a bill of supply. -Similar to the composition rules
6. The registered person shall mention the following words at the top of the bill of supply, namely: –
‘Taxable person paying tax in terms of Notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies’.(Wordings have been changed when compared to Composition rules)
7. Liability to pay central tax at the rate of 3% on all outward supplies notwithstanding any other notification issued under section 9 or section 11 of said Act.- This notification overrides all the other notifications listing out the rates of services for taxpayers provided he adheres to the conditions mentioned.
8. Liability to pay central tax on inward supplies on reverse charge under sub-section (3) or sub-section (4) of section 9 of said Act.-Similar to the provisions for Composition Dealers.
The most anticipated notification has been released by the Central Government bringing into effect the composition scheme for service providers.
Reading between the lines
Now let me draw the reader’s attention to the heading of the notification:
To give composition scheme for supplier of services with a tax rate of 6% having annual turnover in preceding year upto Rs 50 lakhs.
Surprisingly, the wordings of the notification nowhere mentions the scheme as Composition scheme. In fact it has been specifically mentioned that those who are eligible to opt under the Composition scheme in Sec.10(1) shall not avail this option. In other words, manufacturers, traders and restaurant service providers are not eligible to avail this option even if they may fall under the Rs. 50 Lakhs threshold limit. Hence, to call this a composition scheme for service providers technically may not be correct. However one can argue that even under section 10 nowhere in the section has it been provided that the rules are meant for Composition dealers, apart from the Marginal Heading. But still Marginal heading and the description of a notification have different weightage.
To further support my argument, the composition dealers have to mention in their bill of supply as “composition taxable person, not eligible to collect tax on supplies”. However, for those, who opt the scheme under this notification, should mention in their bill of supply as “taxable person paying tax in terms of notification No. 2/2019- Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies”. As you may have noticed, technically speaking this scheme is not a “Composition Scheme” for service providers.
It is a scheme that brings the colour of a composition scheme by way of various exceptions and conditions. This scheme could have been brought in a much easier manner by amending section 10 along with Rule 1-7 of the CGST rules rather than issuing a rate notification with similar conditions of the Composition rules. However that would again be long process, as amending the Act would require the Parliament consent and it may prolong the benefit to be provided to the service providers.
The above notification shall come into effect from 1st April 2019.
OTHER GST AREAS
The CBIC has issued two circulars which are clarificatory in nature- one pertaining to treatment of sales promotion scheme under GST(92/11/2019) and another banking industry specific circular(93/12/2019).
As far as sales promotion schemes are considered, it has been agreed by the department that free samples issued would not attract GST as they are made without a consideration and hope the field offices would take a note of this.
The circular also envisages a- buy-one-get-one-free-situation. It has been rightly clarified that the same shall be treated based on the test of whether the supply is a mixed or a composite supply.
In addition to the above, It has been clarified that discounts offered by the suppliers to customers (including staggered discount under “Buy more, save more‟ scheme and post supply / volume discounts established before or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15 of the said Act (that which deals with conditions of discount).
Further, in case of discounts that are offered after the time of supply which primarily do not satisfy the conditions of 15(3), the same can be addressed by way of raising credit notes and thereby reducing the supplier’s GST liability. Further this will not have any bearing on the input credit of the said goods.
Kudos to the department for issuing an informative circular.
As far as the second circular is concerned, it has been clarified that the nature of supply of PSLC between banks may be treated as a supply of goods in the course of inter-State trade or commerce. Accordingly, IGST shall be payable on the supply of PSLC traded over e-Kuber portal of RBI for both periods i.e 01.07.2017 to 27.05.2018 and from 28.05.2018 onwards. However, where the bank liable to pay GST has already paid CGST/SGST or CGST/UTGST as the case may be, such banks for payment already made, shall not be required to pay IGST towards such supply.
Disclaimer: Any information contained in this article is subject to change. Readers of this article are advised to seek their own professional advice before taking any course of action or decision, for which they (the readers) are entirely responsible, based on the contents of this article.