CA Vaishali Kharde
After two and half months from GST reform now taxpayer started to clear gist of GST. The primary pre- requisite for smooth implementation of GST is the understanding provisions of law so that to do the business smoothly which is still at nascent stage specifically for small taxpayer. Small businesses are yet to prepare for substantial increase in compliances and hence facing many challenges during implementation of GST.
In this regard, as a relief, GST law has provided some of the provision specifically for small business. However, said provisions are either difficult to opt or could not be possible to opt due to practical challenges. We have discussed some of these benefits which are introduced by the GST law and difficulties faced by the business to opt the same.
Every supplier whose aggregate turnover in a financial year exceeds twenty lakhs is liable to register under GST (Section 22 of the GST Act). This provision entails small business to do the business without registration in to GST. However, question is whether this limit of twenty lakh is practically viable to business entity?
In this regard reference can be given to section 9(4) of the CGST Act. As per said section any supply of taxable goods or services by an un-registered person to registered person will attract GST under Reverse Charge Mechanism (RCM). Given this, if goods and services are procured from the unregistered person by the registered business entity then said registered taxpayer is required to pay GST under RCM and input tax credit (ITC) of said GST is available subject to ineligible credit.
One school of thought could be that as ITC of the same is available, no impact on cost of the taxpayer. However, the registered persons are trying to curtail the services and goods procurement from unregistered vendor. This is mainly because of the reason that as per section 31(3)(f) of the CGST Act, ‘a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both;’.
This could mean that, a registered person is required to
– determine the taxability and rate of GST based on nature of goods or services procured and raise tax invoice to avail ITC
– Identify and maintain the record of unregistered vendor like PAN, Name, Address etc.
– Generate payment voucher
These are more challenging task for a registered person. This not only increase the compliance on behalf of un- registered vendor but it could lead to litigation due to wrong determination of tax, Wrong application of tax rate, nature of supply etc.
Given the aforesaid, a registered entity trying to procure goods and services only from registered vendor or enforcing their vendor to avail voluntary registration. Hence, the limit of twenty lakh can only be practically available if taxpayer is engaged in B2C supply within State. In all other cases, either supplier or receiver is required to bear tax burden. This could be one of the step of the government to keep everyone on their toes so that to decrease book adjustment. However, this leads to one of the harsh provision for genuine small taxpayers.
Additionally, unregistered person is not allowed for to carry on the business of inter-State supply of goods and services. As per IGST law Supply to SEZ unit is ‘Deemed Inter-State Supply. This could be construed that, unregistered vendor cannot do business with SEZ unit. This certainly is not ease of doing business for unregistered persons.
The composition scheme is alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 75 lakhs (Rs. 50 lakhs in case of few States). The taxpayer who opts for composition scheme are required to pay tax at a fixed rate without ITC and the periodicity of GST return is quarterly instead of monthly. The main objective of the Composition scheme is to bring simplicity and to reduce compliance cost for small tax payer.
Revenue Secretary Hasmukh Adhia tweeted that “The figure of dealers opting for composition in GST is 5.12 lakh up to 30th (July). Among st so many small businesses only 5.12 lakhs business opts for Composition because which itself shows the response of the taxpayer for opting scheme. This could be because of following some of the practical challenges faced because of composition levy.
Challenges before person Opting Composition Levy
a. Composition scheme norms specify that the word ‘composition taxable person, not eligible to collect tax on supplies‘ should be printed at the top of the bill of supply. Further, said taxpayer will have to prominently display a board stating this and can’t charge GST from customers.
b. In addition to aforesaid, a person cannot opt composition scheme who has purchased goods from an un- registered person unless he has pay GST on such goods or services under RCM. Which mean that while procurement of goods or services the person has to pay input GST and ITC of said GST is not allowed to such person. Hence the person opting composition scheme is required to bear GST on outward supply as well as on inward supply.
c. While paying GST under RCM on procurement from unregistered vendor GST rates are required to be determine as per the nature of supply of goods and services. As far as complexities considered in the determination of tax rate on various goods and services, said business does not has skilled staff with updated GST subject knowledge and training or unable to born cost of such person.
d. A person is not allowed to make any inter-State outward supplies of the goods. Even a single transaction of inter-State supply will prohibit to opt composition levy.
e. A registered person who procure goods and services from composition dealer is not allowed to avail ITC on said invoices. Hence, for B2B supply it adds to the cost. Which further try to restrict such business with the person opting composition scheme.
The primary object of the GST is to streamline business and protect consumer interests and law is designed accordingly. However, at present there are many challenges which are faced by the small business entity. Paying taxes and fulfillment of compliances is right but these provisions have power to effectively wipe out small entities from business. Is it the intention of law?