Answer to the debate of declaration of value of exempted, nil-rated, composition, non-GST goods and the supplies of unregistered persons in GST returns.
There has been an endless debate going on amongst the stakeholders of GST including the tax professionals and practitioners from July 2017 on wards whether the supplies, from /to unregistered persons, persons under Composition, of registered persons where Input Tax credit not availed, supplies of exempted, nil rated and the non-GST goods are to be declared in the periodical returns.
Before concluding the opinion on the issue, let us understand the intend of the relevant provisions under GST Act & Rules.
The registration rules provide for all the above circumstances as trade to survive, all the above features are required to exist. Followed by registration, levy and collection of tax prescribes composition, grant of exemptions. Place of supply determines whether transaction falls under intra-state, inter-state, imports and exports. Input tax credit, an important one to this relevant topic, deals elaborately on ITC eligibility, apportionment of blocked credits which includes ineligibility, non-reversal of credit on job work supplies, Input Service Distribution input tax credit. Accounts and records also deals with amongst others the record to be maintained for both the GST and NON-GST supplies in their place of business. Periodical returns in the prescribed format which includes the Annual Return in Form GSTR-9, an important one which answers the debate.
The beauty of the provisions is so structured in such a way that the origin of a transaction has to be accounted for in the supply chain till the end which can be tracked at the macro level, if not at micro level.
While the transactions between the registered dealers can easily be tracked, let us understand how the supplies of un-registered person, nil rated, exempted, and non-GST transactions are accounted for. In very few cases, may be exempted supplies, it is only an estimation in accounting where supplies by unregistered persons to end consumers are involved
Supplies by un-registered persons
Let us take the stationary supplies of an unregistered person say, A, Chennai. He may sell either to a registered person or to unregistered person or to an end consumer directly.
A is procuring some input supplies of Rs.100/- from a registered person say X.
A is supplying to Y, a registered person after value addition for Rs.150 /-
From X and Y return it can be ascertained by GSTN, A has made an estimated profit of Rs.10/-(industrial average) and used supplies of unregistered persons for Rs.40/-
If Y is not registered, the value addition and profit can be ascertained when the transaction falls into the hands of either a registered person or a compounding person.
Since person A transactions with registered persons are tracked by GSTN in returns, the upper limit of Rs.20 Lakh is monitored with the least effort by the department.
Supplies of Exempted Goods/ services, E.g. electricity charges
A, GST registered person, in his return declares his input cost of electricity from X, an electricity supplier not registered under GST, is Rs.100/- Similarly B another registered person declares his input from X is Rs.150/-. The value of electricity to the other end customers are ascertained approximately either with a query to X or from the agreement with Electricity Board, in case of private players. Thus, total value of EB generated by X can be ascertained
This data would help the revenue implication when the Government decides to electricity into GST net.
Also, such data would help to ascertain the approximate undeclared value of input or output, if any, where power is a dominant input for the output supplies.
Supplies under composition
GSTR1 of X says the output supplies to compounding person Y Rs. 100 /-
GSTR1 of Y says his output supplies as Rs.150/-.
The difference of Rs.50/- can drive home for a conclusion that Rs.10(Industry average) is the margin of Y and Rs.40/- is the value of purchase he has made from un registered person.
Apart from this the GSTN has a tab on the turnover limit of Y to ascertain he is well within the limit of composition limit as prescribed under the law.
NON-GST Goods- E.g. Petrol
In principle it was agreed by all states to bring this into GST net which is presently being subjected to excise and VAT.
Say HPCL-Chennai, not registered under GST, supplies 1000 gallons to un registered Dealer A, Chennai. A supplies 750 gallon to a GST registered person, say, B and balance 250 gallons to various end consumers. B in his returns declares 750 gallons as input supplies from un registered person.
Government comes to know from B that there was an earlier transaction between the unregistered dealers and the total supply was 1000 gallons.
This helps to ascertain the value, volume and the states involved in earlier transaction. In turn the revenue implication can be estimated, in the event of GST being taxed.
In view of the above, it is opined that monthly return should reflect the output as well as input turnover of goods and services of exempted, Nil, composition and NON-GST supplies without any second thought.
Finally, the Annual return, GSTR- Form 9, requires the other purchases on which no ITC is availed and other expenditure (other than purchase) to be declared HSN/SAC wise.
I will fail in my concluding remark if I do not mention that absence of such data in pre-GST regime, had led the stake holders often to wrong estimation, like the recent press release of Tamil Nadu Government announces 22% increase in GST revenue till Dec 2017 as against the fear of loss of revenue had before the implementation of GST.