GST – Procedures Related Issues

Apportionment of credit and blocked credits – The provisions in the GST law restrict the allow ability of ITC in certain situations. Accordingly, the adversity of undesirable cost cascading effect still remains and needs to be addressed particularly in the below mentioned cases:-

  • ITC in respect of goods or services which are used for effecting exempt supplies – . High sea sale should be treated as ‘zero rated supplies’ under the GST law.
  • ITC on Motor vehicles such as cars and other conveyances used for business purposes (subject to certain exceptions) is not allowed under the GST regime – ITC should be allowed. Alternatively, exemption from GST should be provided on further sale/supply of such motor vehicles. It should also be clarified that credit in respect of lease of motor vehicle and buses is allowed.
  • Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples – ITC should be allowed subject to a permissible limit.
  • Where the goods or services or both are used partly for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies – Suitable amendment be made in sec. 17 of the CGST Act, 2017 to provide that goods would exclude capital goods for the purpose of reversal of ITC. It is suggested that entire input tax credit on capital goods should be allowed unless it is exclusively used for exempted supply of goods or services.

Reverse Charge Mechanism – Purchases from Unregistered dealers – The provisions of sec. 9(4) of the CGST Act, 2017 and sec. 5(4) of the IGST Act, 2017 provide for payment of GST by the recipient of goods and services, being a registered person, on reverse charge basis on purchases from unregistered persons. Further, the Government vide Notification No. 8/2017, central tax (rate) dated June 28, 2017 has granted exemption from CGST in respect of such supplies of goods or services provided such supplies does not exceed Rs. 5000 in a day. However, the Government has suspended provisions of sec. 9(4) of the CGST Act, 2017 and sec. 5(4) of the IGST Act, 2017 till 31.3.2018. The provision should be altogether removed from the GST laws.

Place of supply of services by an Intermediary – As per sec.13(8) of the IGST law, the place of supply of intermediary services shall be the location of supplier of service.

The said provision shall negatively impact the intermediary in India who arranges or facilitates the supply of service to the foreign principal. However, as per the aforesaid provision the services provided by an intermediary to any person outside India shall not classify as export and the same shall be taxable in India. Levy of GST on intermediary services would lead to double taxation for the foreign principal as in certain countries recipient of service is required to pay tax in home county on reverse charge basis. Hence, the place of supply of service provided by Intermediary should be considered as the location of recipient of service.

Transitional Provisions

ITC on Capital Goods received after the appointed date – Tansitional credit with respect to stock in transit is allowed as per sec.140(5) of CGST Act, 2017. In a situation where capital goods have been imported on payment of customs duty prior to 30.6.2017 but are received in the factory after the appointed day, the narrow meaning of sec. 140(5) of the CGST Act, 2017 does not allow such credit to the importers. Section 140(5) does not include Capital Goods in transit. Suitable amendment to be made in the Act to provide that credit of duties paid on capital goods in transit will be allowed in addition to credits of duties paid on Inputs & Input Services, even if such goods are received after the appointed date.

The transitional provisions under section 140(5) of the CGST Act, 2017 does not provide for any mechanism to claim credit of tax in respect of input services received on or before the appointed date, however, the invoice was in transit as on appointed date and/or received/paid subsequent to the filing of service tax return cut-off date i.e. August 15, 2017. In such cases credit which would have otherwise been eligible under the erstwhile regime would be denied in absence of provisions to claim such credit under the GST regime. It is requested that appropriate amendment be made to allow credit for such input services under the GST regime.

Carry forward of Krishi Kalyan Cess and Education Cess – In terms of sec. 140(1) of the CGST Act, 2017, CENVAT credit carried forwarded in the return filed under the existing law is permitted to be transitioned as CGST credit. In terms of Notification No. 28/2016 dated 26 May 2016, Krishi Kalyan Cess (‘KKC’) paid on services was available as CENVAT credit. Similarly, Education Cess (‘EC’) and Secondary and Higher Education Cess (‘SHEC’) paid in relation to goods and services was permissible as CENVAT credit. Thus, unutilized balances of KKC, EC and SHEC carried forward in the service tax returns under the existing law should be permitted to be transitioned as CGST credit. It is suggested that appropriate clarity be provided in this regard.

Transition provision to take ITC for eligible credits under the pre_GST law which are within the one year time period specified under the pre-GST law – Under the CENVAT Credit Rules, assessee are eligible to take credit within one year from the invoice date. There are instances where various assessees have missed to take certain input credits in their last Excise or Service Tax or VAT returns example they come across such instances during closure of their audit/tax audits. Going by the provisions of existing law they were eligible to claim the same, had the existing law continued. Transition provisions provide solution only in respect of transfer of closing balances under the last return under the existing law, unavailed credit on capital goods and credit on in-transit goods/services. However, there is no provision to allow credit for genuine cases which got omitted to be taken in the last return under existing law. Suitable provisions may be added/amended and procedure be prescribed to enable taking of such missed credits.

Transition credit for payments made due to Department Audit/Assessment findings – Post implementation of GST, during the department audit or assessment, assessees are required to make payment of taxes under reverse charge for any of the omissions earlier and the provisions of existing law allowed them to take credit for the same. However, under the current transition provisions, there is no possibility of taking this credit as the last date for filing return or revised return under the existing law has been over. Considering this, assessees are having the hardship of paying the taxes without any solution to take input tax credit or refund (in case of exporters). Considering this situation, suitable amendments be made in the GST law to provide for GST transition provision.

Compulsory Registration registration to Non Residents – Sec.24 of the CGST Act, 2017 specifies certain categories of persons who are mandatorily required to register under the GST Act and are not governed by the minimum threshold limit of Rs. 20 lakh/10 lakh. Thus every non-resident person will have to obtain a registration under the GST who occasionally undertake transaction involving supply of goods or services or both, but has no fixed place of business or residence in India.

Registration for non-resident will result into increase in compliance for technical individuals coming to India for providing the technical support to business in India.

Hence the requirement for registration for non-resident under the GST regime shall be dispensed with for transaction covered under a contract with a registered person who should be made liable to pay tax under reverse charge.

As per the provisions of Section 24 of CGST Act, a person is required to take registration under GST to make payment of GST under reverse charge. To reduce the unwarranted compliance burden, a person making supply of only exempted goods or services should not be made liable to take GST registration and make payment of GST under reverse charge mechanism.

To reduce the compliance cost of the small taxpayers, the exemption for registration be provided even to the supplier of goods making inter-state supplies of goods if his aggregate turnover is less than Rs. 20 lakhs (Rs. 10 lakhs in special category States except Jammu and Kashmir) in line with the exemption provided to the service providers.

Various companies in IT/ITES sectors are involved in providing services from client location such as maintenance service, BPO services, etc. Such client location should not be considered as fixed establishment/location from where the services are provided upto certain threshold of value of business. In such cases, the location of project team/ base location of employee could be considered as the location from where the services are provided.

Credit of Coal Cess – Levy of coal cess @ 400 per ton under GST regime without input credit would inflate the cost of power production and would increase the final rate of goods and services. The GST law was promoted as one nation one tax. The levy of cess should not in any way violate the principle of ‘one nation one tax’ as well as the principle of seamless input tax credit. Hence,  coal cess should be done away with or credit for this cess be allowed against the output GST liability of the supplier.

Clean energy cess paid on purchase of coal in pre-GST regime wherein sale of coal is made in GST regime with applicable GST and compensation cess. –  Appropriate clarity should be brought in to allow credit of clean energy cess paid on purchase of coal in pre- GST regime for set-off against the GST and compensation cess on payment in the post GST regime for stock as on transition date.

Reject coal is subject to levy of GST of Rs. 400/MT. Reject Coal is mere wastage generated out of certain process and levy of compensation cess is making transaction commercially unviable. Hence, levy of compensation cess shall not be made applicable in case of sale of reject sale.

Place of supply of accommodation services- (Sec.12(3)(b) of the IGST Act, 2017) – The place of supply for services by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or services by way of accommodation in any immovable property for organising any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property shall be the location at which the immovable property or boat or vessel, as the case may be is located.

In view of above, the place of supply is the location of the immovable property and accordingly the supply is classified as intra- state supply leviable to CGST and SGST.

The place of supply of accommodation service in above cases shall be the location of recipient of service instead of location of immovable property. Place of supply of accommodation services provided to an unregistered person may be the location of immovable property as per the existing provisions

Intra entity transfer of services – That supply of service within the same legal entity from one vertical or division or office to another for use/consumption in the same legal entity should not be made liable to GST.

Input Service Distributor (ISD) should be allowed to discharge reverse charge obligation – Under GST regime, an ISD is required to seek a separate GSTIN no. other than the ISD registration for discharging reverse charge tax liability. This is adding to the multiplicity of registrations and complexity in documentation and compliance. This is also an area impacting the matrix of ease of doing business. GST law should be amended to provide that ISD registration would serve dual purpose of distribution of central ITC and discharge of tax liability under reverse charge provision.

Appropriate clarity be provided so that distribution of input tax credit by way of a cross charge invoice is allowed and the same is not disputed in future.

Rule 39(1) (a) of CGST Rules requires that ITC availed in a particular month should be distributed in the same month and the detail thereof shall be furnished in the FORM GSTR-6 in accordance with the provision of chapter VIII of the CGST Rules. Suggestion is, ITC pertaining to a particular month should be allowed to be distributed any time before filing of annual return for the relevant financial year in which ITC was availed.

GST on export services relating to research and development, technical testing etc. – As per the provisions of the GST law, export of services such as research and development, technical testing and analysis, services relating to re-engineering which require the temporary import of equipment, vehicle on the article into India for carrying out clinical trials, technical testing or re-engineering processes have been subjected to levy of GST.

The levy of tax on export of such services even after re-exports of the article, vehicle or equipment after completion of the study is not justified. Necessary amendment be made in the GST law to provide that place of supply for services provided in respect of goods that are required to be made physically available by the recipient of service to the supplier of service shall be the location of the service recipient instead of the place where the services are actually performed.

Tax wrongfully collected and paid to the Central Government or State Government – Sec.77 of the CGST Act, 2017 and sec. 19 of the IGST Act, 2017 provides that if a registered person has paid the CGST and SGST or CGST and UGST on a transaction considering it as ‘intra- state’ supply which was subsequently held to be an ‘inter-state’ supply, would be allowed the refund of CGST and SGST paid by him. The registered person would however be required to pay the integrated tax due on such a transaction. Similar provisions for allow ability of refund of IGST are there in case an ‘inter-state’ supply was subsequently held as ‘intra- state supply’. This mechanism would result in payment of tax two times by the registered person. He would have to then claim refund by following the procedure contemplated under the law. This would lead to blockage of working capital for the taxpayer and further increases compliance cost for the taxpayer. A mechanism may be evolved whereby the taxpayer may not be required to pay tax twice in case the transaction is merely classified wrongly.

Clarification on GST on recovery of insurance premium or canteen expenses from the employees – The employer discharges full GST on the insurance premium paid to the insurance company and on the catering expenses. However, there is no clarification as on date to provide that part of the recovery of premium and canteen expense made from the employee will not be subject to tax again in the hands of the company. A suitable clarification be issued in this regard to provide that recoveries towards insurance premium or canteen expenses from employees

No penalty for Invoice series mismatch – As per the provisions of Rule 46 of CGST Rules, 2017, invoice should be consecutively and serially numbered uniquely for each financial year. Accordingly, an entity will have to maintain separate series of invoices for each GST registration i.e. state-wise. During the implementation of GST, a lot of assesses have faced serious hardship in configuring separate invoice series in their billing system and there could be lapses due to which they may be maintaining a single invoice series pan India across all GST registrations. Considering this is the initial phase of GST implementation, it is suggested no penal consequences due to non maintenance of separate invoice series for each GST registration by a single entity be triggered.

Issue of revised invoice and Credit note against each original invoice- Further, as per Rule 53 of CGST Rules, it is mandatory to give a serial number and date of the corresponding tax invoice on all the credit notes which are issued. It is practically not possible in multiple cases due to timing and stock holding situation to assign an original invoice link. Implementation of provision of the law in this form will lead to unwarranted compliance.

Basis for determining the number of Quarters for calculation of depreciation on repossessed assets – As per Rule 32(5) of CGST Rules, 2017, there could be an unwarranted situation in case the asset is used for say just 30 days, depreciation may be required to be calculated for 2 quarters. Some calculations of quarter is given below which does not seem to be in line with the intent of the Government.

A suitable amendment be made in the law to provide that the number of quarters be based on number of days on the basis of 90 days in one quarter with suitable provision for rounding off.

Audited Annual Accounts and reconciliation statement – The format for the audited accounts and audit report is yet to be prescribed. Further, the exempt/nil rated or Non-GST items may be excluded from the purview of audited accounts in respect of State offices.

Denial of GST credit to customer, if supplier has defaulted in filing return – The basic premise of introduction of GST is to allow seamless flow of credit which seems to be defeated with the concept of recipient being made to suffer for the default of the supplier. A suitable amendment may be made in the GST laws to allow ITC to the customer in case he has made the payment of invoice along with tax to the supplier and  in such cases the supplier should be made liable to pay tax along with interest. This will protect the interest of the buyer and would encourage the customers to do business with small and medium business units.

Cap Pre-deposit in case of filing appeal (Sec.107(6) of the CGST Act, 2017) – A pre-deposit of 10% of the tax in dispute is must for filing an appeal. The total pre deposit in pre GST law was subject to a ceiling of Rs.10 Crores. There is celing Limit in CGST Act. Experience is that, In many cases huge demands are created arbitrarily against the taxpayer and the rate of success in appeal at CESTAT in favour of the taxpayer is very high. Mandatory payment of pre-deposit in all the cases that too without any ceiling limit will result in unnecessary financial hardship. Since final disposal of the appeal takes time considering the pendency of the cases at Appeal Stages, the funds gets blocked for a long period of time. It is suggested that a cap be introduced in the GST law on the amount of predeposit in case 10% of the disputed tax exceeds certain amount say Rs.10 crores.

Allowing credit in respect of demand confirmed after 1.7.2017 – As per the provisions sec.142(6)(b) of CGST Act, 2017, if any amount of credit becomes recoverable as a result of appeal disposed of under the pre GST law the same shall be recovered as an arrear of tax under GSTAct unless recovered under the pre GST law and the amount so recovered shall not be admissible as ITC under GST Act. However, the credit of payment made by the assessee against the CENVAT credit demand shall be allowed under the GST regime in cases wherein the charges of fraud, suppression, mis-statement of facts etc. are not proved.

Procedure for Refund of Cess – Sec.9(2) of GST (Compensation to States) Act, 2017, provides that for all purposes of furnishing of returns and claiming refunds, except for the form to be filed, the provisions of the CGST Act and the rules made there under, shall, as far as may be, apply in relation to the levy and collection of the cess leviable under sec. 8 on all taxable supplies of goods or services or both, as they apply in relation to the levy and collection of central tax on such supplies under the Act or the rules made there under. Forms and manner of claiming refund of compensation cess has not yet been prescribed. The forms and rules for refund of compensation cess must be prescribed at the earliest.

Treatment of Sales Return – Practically, there would be number of cases where the goods sold would be received by the supplier after the last date of filing of annual return. As per the existing provisions of the GST laws, no adjustment from the output tax liability of the supplier would be allowed after the date of furnishing the annual return of the financial year. Adjustment shall be allowed to be made from the output tax liability of the supplier in the month in which the goods are returned and the details of the credit note issued shall be furnished by the person in the return of the month during which such credit note has been issued.

Periodicity of GST returns – Considering the time and resources involved in compliance under the GST regime and to ensure smooth transition to the GST the periodicity of filing of returns may be made quarterly for all the taxpayers though payment of tax can be made monthly for taxpayers having annual aggregate turnover above Rs. 1.5 crores.

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Qualified CA with around 35 years of experience in - Financial Accounting, Core Finance, Taxation, VAT implementation, GST implementation, ERP (SAP) implementation, EPCG; Duty Draw Back, Insurance Management, Logistics Management, etc. Author of books on VAT, Central Excise, Customs & Direct Tax View Full Profile

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June 2021