Analysis of main Recommendations of 28th GST Council Meeting

Article presents summary of Changes Proposed in GST Law by 28th GST Council in its meeting held on 21st July 2018 which includes Changes in Rate of GST on Goods and Services, GST Migration Facility till 31st August 2018 with late fee waiver, Increase in Composition Limit, Input Credit Law, Changes in GST Reverse Charge Mechanism, Simplified GST Return, Increase in threshold limit for GST registration etc.

Amendments to be effective after issue of notification:

1. Reopening of GST migration window

GST Council in its 28th meeting held has approved the proposal to open the migration window for taxpayers, who received provisional IDs but could not complete the migration process.

Unanswered: Since the migration window will be reopened a question arises whether such tax payers shall be allowed to file TRAN 01 and avail input of transitional credit if any held by them in the existing laws.

Action Point: The taxpayers who filed Part A of FORM GST REG-26, but not Part B of the said FORM are requested to approach the jurisdictional Central Tax/State Tax nodal officers with the necessary details on or before 31st August, 2018.

Order dated 18.07.2018 F.No. 96/ACTT/GST/2018/391-93 has also been issued in this regard. Further procedural formalities are awaited.

2.Waiver of late fees for those tax payers who availing Reopening of GST migration window facility

It has also been decided to waive the late fee payable for delayed filing of return in cases discussed in paragraph 1 above.

Action Point: After the migration is completed the tax payer shall file the return after payment of late fees and then such late fees shall be refunded in the cash ledger under the respective tax head.

This would result in temporary blockage of funds.

3. Reduction in Rate of GST / Grant of exemption from GST

There has been a downward revision in the rates of few goods and services. The HSN wise list shall be released in the notification. The 28% GST rate slab when introduced had 228 items in the list and has now reduced to just 35 items in a short span of one year.

Action Point: The benefit of reduction in rate of GST is required to be transferred to the customers by way of reduction in the price of the goods, in order to avoid attraction of the anti-profiteering rules.

Further in cases where exemption is granted, ITC on the closing stock and capital goods (after reducing 5% for every quarter or part thereof) will need to be paid either by debit in the cash ledger or the credit ledger. The balance if any in the credit ledger shall lapse.

4. Relief to Hotels from GST

Hotel industry has been given major relief by providing that the rate of tax on accommodation service shall be based on transaction value instead of declared tariff.

5. Banking & IT Sector

Services provided in sectors like banking, IT have been provided relief by exempting services supplied by an establishment of a person in India to any establishment of that person outside India [related party].

Impact: Even though the service is provided to a recipient outside India, such services shall not be regarded as export as the same excluded from the definition of “export of service” hence it led to additional tax cost.

6. Relief to exporters

Extend the exemption granted on outward transportation of all goods by air and sea by another one year i.e. upto 30th September, 2019 as relief to the exporter of goods.

7. Simplified GST Return

• GST Council approved the new GST return formats and associated changes in law. The formats and business process approved today were in line with the basic principles with one major change i.e the option of filing quarterly return with monthly payment of tax in a simplified return format by the small tax payers.
• All taxpayers excluding small taxpayers and a few exceptions like ISD etc. shall file one monthly return. The return is simple with two main tables. One for reporting outward supplies and one for availing input tax credit based on invoices uploaded by the supplier
• NIL return filers (no purchase and no sale) shall be given facility to file return by sending SMS.
• Council approved quarterly filing of return for the small taxpayers having turnover below Rs. 5 Cr as an optional facility. Quarterly return shall be similar to main return with monthly payment facility.

Unanswered: While the filing of return has been made quarterly, the payment remains to be monthly and hence there is not much reduction the compliance. If the government really considers to ease the compliance of the “small tax payers” then payment could also have been made quarterly.

Amendments that will now be placed before the Parliament and the legislature of State and Union territories with legislatures for carrying out the amendments in the respective GST Acts:

8. Increase in upper limit for opting composition scheme under GST

The Upper limit of turnover for opting for composition scheme under GST to be raised from Rs. 1 crore to Rs. 1.5 crore.

Action Point: Though opting for GST composition Shceme has benefits of lower compliance, following are the two analyses to be made before opting for the scheme:

• The ITC on the closing stock as on the date of opting the scheme shall be reversed with ITC. If there is no balance in the ITC ledger then the same shall be paid in cash. Any balance in ITC after the above adjustment shall lapse.
• Tax paid under composition scheme is not available as ITC to the recipient and thus if majority of the supply is B2B then this option may be a loss to the customers

9. GST Composition dealers to be allowed to provide services

Composition dealers to be allowed to supply services (other than restaurant services as these are already allowed to opt for composition), for upto a value not exceeding 10% of turnover in the preceding financial year, or Rs. 5 lakhs, whichever is higher.

Impact: This is a welcome amendment as many tax payers who were providing services were unable to opt for composition scheme.

10. Reverse Charge in case of unregistered supplier shall apply only for specified goods

Levy of GST on reverse charge mechanism on receipt of supplies from unregistered suppliers, to be applicable to only specified goods in case of certain notified classes of registered persons, on the recommendations of the GST Council.

Impact: Reverse Charge on supply received from an unregistered person had caused hardships to the tax payers due to it having procedural complications of identification of the rate and HSN which would differ based on the nature of the supply. It had already received suspension thrice earlier and now is proposed to be limited to specified goods as may be notified.

11. Changes in Schedule III

The following transactions to be treated as no supply (no tax payable) under Schedule III:

1. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India;
2. Supply of warehoused goods to any person before clearance for home consumption; and
3. Supply of goods in case of high sea sales.

Impact:

• Movement of goods from one non taxable territory to another non taxable territory by a person registered in India shall not be taxable in India.

• Clause (b) and clause (c) will ensure there is no double taxation in the case of high seas sales. Presently such transactions are leviable to IGST twice, once under the Customs Tariff Act, 1975 (read with the IGST Act) and then for a second time, on clearance for home consumption under the IGST Act. However circulars were issued to avoid such dual taxation.

12. Widening of scope of Input Tax Credit under GST Law

Input Tax Credit will now be available on:

1. Most of the activities or transactions specified in Schedule III;
2. Motor vehicles for transportation of persons having seating capacity of more than thirteen (including driver), vessels and aircraft;
3. Motor vehicles for transportation of money for or by a banking company or financial institution;
4. Services of general insurance, repair and maintenance in respect of motor vehicles, vessels and aircraft on which credit is available; and
5. Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force.

Impact: This is a tax payer friendly amendment expanding the scope of ITC availability.

13. Others Important Changes Proposed in GST Law

Increase in threshold limit for GST registration in the States of Assam, Arunachal Pradesh, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand from Rs. 10 Lakhs to Rs. 20 Lakhs.

• Option to opt for multiple registrations within a State/Union territory in respect of multiple places of business located within the same State/Union territory.
• Registered persons may issue consolidated credit/debit notes in respect of multiple invoices issued in a Financial Year.
• In case the recipient fails to pay the due amount to the supplier within 180 days from the date of issue of invoice, the input tax credit availed by the recipient will be reversed, but liability to pay interest is being done away with.

14. Press Releases related to 28the GST Council Meeting on 21st July 2018

GST rate on Services- 27 Major Changes in 28th GST Council meeting

List of Changes in GST Rate on Goods in 28th GST Council Meeting

GST council approves Simplified GST Return

28th GST Council meeting- Key Takeaways

GST migration window for tax payers till 31st August, 2018